Johannesburg - The rand weakened against the dollar early on Friday but stayed within the previous day's range, waiting for further direction from offshore markets where investors are showing concern about China's growth.

The rand has traded in a 10.9650 to 10.6980 range this week, driven mainly by risk sentiment towards emerging markets which are taking some pain because of fears of a growth slowdown in the world's second-largest economy and tensions in Ukraine.

The rand fell 0.2 percent to 10.8280 to the dollar at 08:51 SA time, from a 10.8050 close in New York on Thursday.

Analysts said the unit could weaken back up to 10.90 levels in this session.

Government bonds rose to their highest in six weeks on the front end of the yield curve as investors discounted steep increases in interest rates after central bank Governor Gill Marcus last night said market expectations of big hikes were overdone.

“The SARB governor's comments last night will continue to unsettle a few nerves,” Thando Vokwana, a bond trader at Rand Merchant Bank, said in note.

Yields fell 10.5 basis points to a week low of 6.91 percent on the short-dated benchmark 2015 note and were down 4.5 basis points to 8.505 percent on the 2026 issue.

“Questions still arise regarding the likelihood of another possible interest rate hike at the next MPC meeting, with the market assigning close to 50 percent probability of a 50 basis point hike at that meeting,” Vokwana added.

The central bank, which imposed a 50 basis point hike in the repo rate to 5.5 percent in January, announces its next decision on March 27.

The Treasury will issue 800 million rand of inflation-linked bonds over the 2025, 2038 and 2050 bonds at 11:00 SA time. - Reuters