JOHANNESBURG (Reuters) – South Africa’s rand extended losses against the dollar to more than 1 percent on Friday, weighed down in part by fears over an ongoing investigation into Finance Minister Pravin Gordhan which exacerbated the impact of a decline in global risk appetite.

Stocks were up slightly, buoyed by resource firms Anglo American and BHP Billiton. The JSE’s benchmark Top-40 index was up 0.4 percent by 1110 GMT.

At 1110 GMT the rand had weakened 1.22 percent to 14.3180 per dollar, its weakest in three sessions.

The unit had touched its firmest in two weeks on Thursday before it began backtracking as doubts over Gordhan’s tenure and uncertainty in global markets over the path of interests rates in the United States and Europe stalled the currency’s progress.

Gordhan, at two separate events on Thursday, questioned the motive of a police investigation into his role in setting up a surveillance unit at the tax service.

“It seems like the rand is rebalancing after over-extending in the previous sessions and traders are waiting for some definitive direction,” said head of foreign exchange at Capilis Asset Management Giacomo Bonavera.

“Around 14.20 or 14.30 might be nice place for it to settle in the medium term. But any bad news from the political side would weaken the currency.”

The rand slipped nearly 10 percent in the wake of police unit the Hawks issuing Finance Minister Gordhan with a summons on Aug. 23 to answer questions about a spy unit in the revenue service during his time as commissioner.

Opposition parties have called the investigation a witch-hunt and a veiled attack on the independence of the treasury.

Government bonds were also weaker, with the yield on the 2026 benchmark issue climbing 14 basis points to 8.74 percent.

A decision on Thursday by the European Central Bank to keep interest rates at record lows received a mixed reaction from emerging markets.

Appetite globally for the high-yielding assets waned as the length that rates would remain low in Europe and in the United States remained uncertain.

(Reporting by Mfuneko Toyana and TJ Strydom; Editing by Robin Pomeroy)

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JOHANNESBURG (Reuters) – Growth in South Africa’s two key sectors slowed on Thursday, with weak activity renewing fears South Africa may struggle to avoid recession and a downgrade of its debt to junk status by year’s end.

Manufacturing output braked to below 1 percent year-on-year while mining output contracted sharply, dousing optimism earlier in the week after second quarter gross domestic product bounced back from a contraction in the first quarter.

Manufacturing slowed to 0.4 percent year-on-year in July, well below expectations of 3 percent after rising by a revised 4.7 percent in June.

Mining output contracted by 5.4 percent in the month from a 3 percent contraction previously, data from Statistics South Africa showed, below expectations of a 1.4 percent contraction.

Production of electrical machinery shrank 13.7 percent, basic iron by 4.9 percent and vehicle production by 3.8 percent, all on a year-on-year basis.

“The first Q3 South African output data support our view that the rapid growth reported in Q2 is unlikely to be sustained,” Africa analyst at Capital Economics John Ashbourne said in a note.

Africa’s most industrial economy grew by a surprise 3.3 percent in Q2, data on Tuesday showed, but was only up 0.6 percent year-on-year, prompting analysts and the central bank governor to warn that growth remained insufficient.

Reserve Bank Governor Lesetja Kganyago said on Wednesday that current levels of growth were inadequate and needed to be closer to 6 percent. The Bank forecasts zero percent growth in 2016.

Ratings firms Fitch and S&P Global Ratings, which both rate South Africa’s debt one notch above junk status, have cited low growth as possible trigger for a downgrade in reviews in December.

(Reporting by Mfuneko Toyana; Editing by James Macharia and Jon Boyle)

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JOHANNESBURG (Reuters) – The chief executive of South African’s biggest lender by market value FirstRand Ltd said the chances of a sovereign downgrade for Africa’s most industrialised country this year had risen due to a stagnant economy and political uncertainty.

Johan Burger said on Thursday after reporting the bank’s annual results that a downgrade would negatively impact lending and lead to banks tightening credit extension. The central bank has forecast growth at zero percent this year.

FirstRand reported a 5 percent rise in full-year headline earnings per share (EPS), slower than the previous year which it blamed largely on a sluggish economy, sending its shares down nearly 3 percent in early trade.

“The probability has actually increased for a downgrade,” he told Reuters. “That would have a negative impact on lending.”

Burger said a downgrade could hurt clients’ ability to afford credit as the currency weakens and interest rates rise.

“Low growth combined with weaker balance sheets of some state-owned enterprises (SOEs) has added fiscal risk which is likely to result in a sovereign downgrade by the end of 2016,” FirstRand said in a statement.

Moody’s rates South Africa two notches above junk, while both S&P and Fitch left ratings at BBB- in June, one notch above junk, however both agencies warned about the weakness of growth and heightened political risks.

A police investigation into Finance Minister Pravin Gordhan over a surveillance unit set up years ago at the tax agency when he headed the department has rocked local markets and led to concerns that ratings agencies could downgrade the country in their reviews expected by December.

State-owned enterprises, such as national carrier South African Airlines and power utility Eskom have struggled financially and relied heavily on government guarantees.

FirstRand, which owns First National Bank and vehicle finance unit Wesbank, said headline EPS rose to 399.3 cents in the year to June 30 from 381.4 cents a year earlier.

Earnings were lifted by a 13 percent increase in net interest income and a 7 percent rise in non-interest revenue. Headline EPS is the main profit measure in South Africa; it strips out certain one-off items.

Shares in FirstRand fell 2.4 percent to 46 rand by 0837 GMT, compared to a 0.4 percent decline in the benchmark Top-40 index.

(Reporting by TJ Strydom; Editing by James Macharia)

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