JOHANNESBURG (Reuters) - South African government bonds traded steady to firmer on Tuesday after a weekly debt auction suggested a Fitch downgrade of South Africa's credit outlook had not damaged demand for local debt.
The rand also firmed against the dollar after strong growth data in China and better-than-expected German economic sentiment boosted global appetite for riskier assets.
The rand was off a one-month highs of 7.9928 hit earlier, as importers saw those gains as an opportunity to buy the dollar. It traded at 8.05 against the dollar at 1555 GMT, 0.6 percent firmer than Monday's New York close of 8.1050
Yields on the 2015 bond were unchanged from the previous close at 6.77 percent while the longer-dated 2026 note fell two basis points to 8.525 percent.
"We saw a strong risk-on theme initiated by good growth data out of China but there's retracement in the risk this afternoon with the euro coming down to the 1.27's," said Duncan Howes, trader at Absa Capital.
The rand was also getting support from a higher gold price - which hit 5-week highs - and had potential to firm to the 7.90's in the next few days, said Brigid Taylor, head of institutional sales at Nedbank.
Local inflation and retail sales data will be watched on Wednesday. The market expects inflation to rise to 6.2 percent year-on-year and a higher than expected number will harden expectations of rises in interest rates by the end of the year that would support the rand.
The Reserve Bank is expected to keep its main repo rate at 5.5 percent on Thursday, with its meeting mainly watched for changes to its inflation forecasts and tone on policy.
After reducing rates by 650 basis points in the two years to the end of 2010, the bank is seen as having little room left to support a faltering economy and will rather have to turn to raising rates to combat above-target inflation.