Nov. 11 (Bloomberg) -- South Africa's rand snapped a two-day advance against the dollar and the euro as stocks dropped and a government report showed manufacturing rebounded by less than expected in September.

The rand extended losses after Standard & Poor's cut its debt outlook to negative, citing ``pressures on South Africa's balance of payments'' from the global credit crisis. The main equity index slipped as prices for gold and platinum, the nation's top export earners, retreated. Factory output rose an annual 4.9 percent, less than the 5.7 percent predicted in a Bloomberg survey.

``Investors are still cutting positions in riskier assets because of fears the financial-market crisis will have a further negative contagion effect,'' said Ulrich Leuchtmann, an emerging- markets currency strategist in Frankfurt at Commerzbank AG, Germany's second-biggest lender. ``Global recession fears put an added drag on emerging-market economies like South Africa.''

The rand fell as much as 2.7 percent to 10.2895 per dollar and was at 10.2885 by 5:22 p.m. in Johannesburg, from 10.0200 yesterday. It dropped versus all its 16 most-actively traded peers monitored by Bloomberg, losing 1.6 percent 12.9830 per euro.

South Africa's currency has ``limited scope to recover beyond 10 rand to the dollar'' by year-end, according to Leuchtmann.

The nation's benchmark FTSE/JSE Africa All Share Index of stocks dropped 4.5 percent, its steepest decline since Oct. 22. The MSCI World Index lost 1.5 percent, snapping a two-day gain.

Precious Metals

Platinum, which rivals gold as South Africa's biggest export, slumped 4.1 percent to $822 an ounce. Bullion fell 1.5 percent to $734.78 an ounce. South Africa produces almost 80 percent of the world's platinum and about 10 percent of its gold, typically causing the rand to move in tandem with the metals' prices.

Standard & Poor's cut the nation's debt outlook to negative from stable on concern the rand may weaken as foreign-investment inflows needed to finance its current-account deficit ``remain negative on average in the short term,'' the company said in a statement.

The rand fell more than 33 percent this year as investors sold almost 62 billion ($6.3 billion) more than they bought of the country's assets, partly on concern South Africa will struggle to fund the shortfall, which the government expects to reach 7.6 percent of gross domestic product this year.

Fitch Ratings lowered its outlook on South Africa's credit rating to negative yesterday, also citing concern about the size of the current-account gap.

`Depressed Demand'

Growth in factory output, which accounts for 16 percent of the nation's $278 billion economy, climbed by less than expected as interest rates at a five-year high and falling demand.

``Manufacturers have been under pressure because domestic demand is depressed,'' said Kay Walsh, an economist and currency researcher at Rand Merchant Bank in Johannesburg. ``They also can't take advantage of the weaker rand to boost their exports because the world economy is heading for a recession.''

The rand will trade at 9.50 per dollar by year-end, and 10.50 by the end of 2009, according to Rand Merchant Bank forecasts. The Johannesburg-based lender had previously predicted the rand would trade at 8.50 at the end of December.

Government bonds fell, with the yield on the benchmark 13.5 percent security due September 2015 rising 20 basis points to 8.73 percent. The yield on the 13 percent note maturing in August 2010 gained 16 basis points to 9.18 percent. Yields move inversely to bond prices.

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

Last Updated: November 11, 2008 11:16 EST