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Rand tracks softer euro

Johannesburg - The rand weakened against the greenback in midday trade on Tuesday, tracking the euro after S&P's decision to put 15 of the 17 eurozone countries on a negative ratings watch.

A local dealer noted that a sustained push above R8.10/$ would lead to further rand weakness. Howeverm he added that the local unit had settled into a range. "We are still very much headline driven," he said.

At 11:46 local time, the rand was bid at R8.0919/$ from its previous close of R8.0264/$. It was bid at R10.8181 to the euro from R10.7540 before, and at R12.6355 against sterling from R12.5602 previously.

The euro was bid at $1.3366 from its previous close of $1.3384.

RMB analysts said in a note that S&P's decision to put 15 of the 17 eurozone countries - including Germany and France - on a negative ratings watch had interrupted the bullish rand trend.

S&P's warning came as quite a surprise, RMB said.

"The market had been worried about the credit ratings for France and some of the other troubled large economies - the PIIGS (Porugal, Italy, Ireland, Greece and Spain) having been downgraded long ago - but S&P's ratings watch also covered Germany and five other AAA rated economies. "Their warning is over the risk of a systemic crisis in the eurozone."

RMB said that historically there was a 50% chance of a country being downgraded after being put on negative ratings watch.

Dow Jones Newswires reported that the euro slipped against the dollar as investors got their first chance to react to Standard & Poor's putting 15 eurozone countries on negative credit watch, adding weight to the make-or-break nature of Friday's European Union summit.

Traders also noted some relief at the progress made by German Chancellor Merkel and French President Sarkozy during their meeting in Paris on Monday. They agreed to propose changes to the European Union treaty that would force eurozone member countries to adopt stricter budget rules, fuelling hopes that Friday's summit would yield decisive measures.
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