South Africa's rand weaker ahead of S&P decision

JOHANNESBURG (Reuters) - South Africa's rand weakened on Friday ahead of a review of its debt by S&P Global Ratings at a time its economy is struggling and the country is facing an ongoing power struggle within the ruling party. The government of Africa's most industrialised country's risks being downgraded to "junk" status - for the first time since 2000 - while it needs to borrow about 165 billion rand ($12 billion) this fiscal year to help plug its budget deficit. The Treasury warned last month that its borrowing costs could double or triple if it falls into sub-investment grade, which would also deter investment in a country it forecasts to register 0.5 percent growth this year. S&P's rates South Africa BBB-, the lowest investment grade level, with a negative outlook. Fitch and Moody's last week held the country's investment grade rating. At 1023 GMT, the rand traded at 14.1325 per dollar, 0.23 percent weaker from its New York close on Thursday. Some analysts said they were cautious after S&P last week cut South Africa's state-owned power utility Eskom's credit rating a further notch into subinvestment, raising concerns over the country's sovereign rating. Others said S&P could downgrade South Africa's local debt rating but keep the foreign rating at investment grade. "S&P’s decision is mostly black or white: they downgrade South Africa’s long-term foreign currency rating or not. However, there are some grey scenarios; for instance, where they downgrade the local rating but not the foreign rating," Rand Merchant Bank analyst John Cairns said. He forecast a brief "aggressive" rand reaction in the case of a downgrade, with the currency falling to 14.4000 per dollar. Although Fitch kept its rating for South Africa last week, the agency changed its outlook to negative from stable, warning that political risks could hurt growth and cited in-fighting in the ruling African National Congress (ANC). The ANC this week backed scandal-plagued President Jacob Zuma after several officials called for him to resign. Since taking office in 2009, Zuma, 74, has been plagued by accusations of corruption, which he has repeatedly denied. Analysts said the U.S. jobs data due Friday could also affect the rand. A strong print could boost interest rate expectations, subduing investors' appetite for emerging markets assets, which offer higher returns but carry more risk. Government bonds firmed, and the yield for the benchmark instrument due in 2026 dipped 1 basis point to 9.09 percent. On the stock market, the broader all-share dropped 1.3 percent to 49,295. ($1 = 14.1098 rand) (Reporting by Olivia Kumwenda-Mtambo; Editing by James Macharia)