By Reuters

Johannesburg - The rand sank to its lowest level against the dollar in more than two months yesterday, undermined by weak growth data that supported expectations of an interest cut, traders said.

The rand was bid at R8.2125 to the dollar by 5pm, almost 13c weaker than its close on Tuesday, after easing to an intraday low of R8.35 to the dollar.

This took its losses since hitting a 32-month peak of R7.05 against the dollar four weeks ago to more than 13 percent.

Its slide gathered pace after support gave way at about R8.14/R8.15, although exporters helped cap the move by selling dollars in the R8.25 area.

Traders said the unit was now targeting R8.50 to the dollar.

"The rand slid rapidly through the R8.24/R8.27 to the dollar level, but the subsequent sharp reaction back from that area signalled that a consolidation phase was under way," said one London trader, who saw a new target of R8.50/R8.58.

Producer price data for April released yesterday reinforced speculation the Reserve Bank would cut interest rates at its two-day policy meeting beginning on June 11. Producer prices rose by 3.3 percent year on year.

This was below consensus forecasts and down from a 5.1 percent increase in March.

Data released by the Reserve Bank showed the country's leading indicator - which points to turnarounds in the business cycle six to nine months ahead - fell by 8 percent in the year to March.

Ettienne Leroux, an economist at RMB Treasury, said: "It strengthens the case for a 1 percentage point cut in the repo rate in June.

"I think it's becoming very difficult to justify not cutting rates."

Most in the market now expect the Reserve Bank to cut its key repo rate by 100 basis points from 13.5 percent now, but there is already speculation it will not be enough to support the flagging economy  
.

Lower interest rates will reduce the appeal of the rand to foreign investors, who drove its rally in the last few months.

Traders said dollar interest was led by a combination of local importers and offshore fund players.

But they added that technicals suggested the dollar/rand appeared to have been overbought, which led to the slight pullback by the local unit.

Bonds weakened in line with the rand. The yields on the R150 was bid at 10.35 percent, 5 basis points weaker than Tuesday's close. The yield on the benchmark R153 was bid at 9.72 percent, 6 basis points weaker.

Traders said they expected the overall bullish sentiment to hold in the bond market despite yesterday's performance.

The dollar snapped back from the previous session's record lows against the euro yesterday and won back around 1 percent from the Swiss franc and the yen in a broad-based rebound after weeks of weakening.

Analysts said the recovery was driven by technical factors as well as by the market's increased focus on next week's European Central Bank (ECB) meeting, which many expect to bring a yield-reducing euro zone interest rate cut.

A Reuters survey, conducted between May 26 and yesterday, showed 54 out of 57 economists expected the ECB to cut its minimum bid refinancing rate on June 5. Only three thought rates would be left at 2.5 percent.

"It's profit taking. The dollar has gone a long way without retracement and it is a good time to lock in some profits ahead of the ECB," said a European bank trader in London.

By late-morning trade in London, the dollar was just below the day's peak at $1.1707 a euro, more than 2c above its all-time low of $1.1932 set on Tuesday and up 0.8 percent on the day.