Picture: Siphiwe Sibeko

Johannesburg - The rand clawed back some ground against the dollar on Thursday, helped by an upswing in global market sentiment, but remained vulnerable due to the dim economic outlook for South Africa.

Stocks ended near a two-year low in volatile trade, with MTN Group leading the decline on the local bourse over concerns raised by claims that it owed unpaid taxes in Cameroon.

The rand rallied to a session high of 16.5700, up more than 1 percent on the day, and was trading at 16.6000 by 15h45 GMT, a 0.9 percent gain over Wednesday's New York close.

The rand is, however, still down more than 7 percent since the start of the year, dragged down mainly by concerns about the impact of a slowdown in commodity consumer China. The currency has fallen steeply since President Jacob Zuma unnerved investors by firing the finance minister last month.

“With this weight of downbeat sentiment it would take a brave decision to position to the short side in dollar/rand,” IGM analyst Christopher Shiells said.

“At least, we see little room for a rand recovery in 2016, but we would wait until after the February budget before extending our upside target beyond 17.0000.”

South Africa's credit rating would be downgraded if further policy mistakes such as the cabinet reshuffle were made and economic growth continued to disappoint, the regional head of Standard & Poor's said.

In fixed income, government bonds weakened across the board, ahead of next week's rate decision on January 28.

The yield for debt due in 2026, the market benchmark, added 2 basis points to close at 9.655 percent.

On the bourse, the Johannesburg Securities Exchange's blue-chip Top 40 index fell 0.16 percent to 41,544 points.

The broader All-share index fell 0.1 percent to 46,282 points, the lowest close since February 2014.

MTN's shares plunged 4.32 percent to R112.62 even after it insisted it was compliant with Cameroonian laws, a day after the central African nation said the mobile phone company owed money in taxes.

The blue-chip index has lost more than 3 percent over the last two days, tracking global markets.

“We have a volatile and nervous market across the board and we are selling off since yesterday,” said Afrifocus Securities trader Ferdi Heyneke.

On the up side, Clicks Group rose 4.4 percent after the cosmetics and drug retailer said sales for the 20 weeks to January 17 increased by 12 percent on mark-downs.

Trade was brisk, with 285 million shares changing hands, according to preliminary bourse data.