March 7 (Bloomberg) -- South Africa’s rand posted its biggest weekly decline in two months on concern the global recession may spread to the continent’s largest economy.

The rand weakened against the 16 most-actively traded currencies monitored by Bloomberg this past week after reports showed manufacturing output dropped to a record low and house prices fell for a third month. The U.S. reported unemployment reached the highest in more than a quarter of a century, while China refrained from announcing new stimulus measures.

“There’s been a slew of bad economic data that has pushed the rand into weaker territory,” said Nema Ramkhelawan, a currency strategist at Rand Merchant Bank in Johannesburg. “Negative sentiment in equity markets is fuelling risk aversion and that means the rand could weaken further.”

The rand slumped 4.3 percent in the week to 10.5504 per dollar as of 6:07 p.m. in Johannesburg yesterday, from 10.1165 on Feb. 27. Against the euro it slipped 3.8 percent to 13.2771, from 12.8150.

South Africa’s economy will shrink 0.6 percent in 2009 as a global recession reduces demand for the nation’s exports and domestic consumption decreases, Bank of America Corp.-Merrill Lynch & Co. said on March 3.

Manufacturing, which accounts for 16 percent of South Africa’s economy, fell for a 10th month in February, with the seasonally adjusted Investec Purchasing Managers Index declining to a record low of 39.2 compared with 40.7 in January. House prices dropped 1.3 percent in February, said Absa Group Ltd., the country’s biggest mortgage lender.

China, Commodities

South Africa’s currency also fell this week on concern an economic stimulus plan in China may not be enough to spur demand for raw materials in the world’s third-largest economy. In his annual speech to parliament, China’s Premier Wen Jiabao failed to provide details of a plan to boost investment above the $585 billion stimulus package announced in November. China is the world’s biggest consumer of industrial metals.

Weaker prices for commodities, which account for 30 percent of South Africa’s export earnings, will make it difficult for South Africa to finance the deficit on its current account, a measure of trade in goods and services, according to Natheem Alexander, a bond and currency trader in Cape Town at Peregrine Quant. The shortfall may reach 8.1 percent of gross domestic product in 2008, according to government estimates.

“The scale of this global recession is a lot worse than anyone anticipated,” said Alexander. “A slowing global economy does not bode well for emerging markets like South Africa, particularly those with large external deficits.”

Unemployment data this week highlighted the extent of the recession in the U.S., the world’s biggest economy and one of South Africa’s main export markets. The U.S. unemployment rate jumped in February to 8.1 percent, the highest level in more than a quarter century as employers eliminated 651,000 jobs.

To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net

Last Updated: March 7, 2009 02:00 EST