Nov. 2 (Bloomberg) -- The rand slipped to its weakest level since July as signs that the global economic recovery is losing momentum prompted investors to cut holdings of higher-yielding assets.

South Africa’s currency declined as much as 6 percent to 8.2811 against the dollar, the worst since July 15. The drop was the steepest intraday slide since Oct. 24 last year, according to Bloomberg data. The local currency was trading at 7.9210 at 9:21 a.m. local time, compared with 7.8150 late Oct. 30. Against the euro it eased 1.7 percent to 11.6941.

Investors borrowing in dollars to invest in currencies offering higher interest rates have led to the “mother of all carry trades,” Nouriel Roubini, a New York University professor who predicted the global crisis, said on Oct. 27 via satellite to a conference in Cape Town. Nobel laureate Paul Krugman warned last month that U.S. recovery in the second half of the year may not be sustained.

“We are seeing risk aversion coming back with increasing warnings from Nobel laureates about the global recovery,” said Sebastien Barbe, a Hong Kong-based strategist at Calyon, the investment banking unit of France’s Credit Agricole SA. “South Africa’s rand is one of the most vulnerable to unwinding of risk aversion as it has one of the strongest rallies this year but its economic growth is still lagging the global recovery.”

Stocks Slide

The rand has slumped in 10 of the past 13 trading sessions, trimming its gain this year to 17.6 percent. It is still the third-best performer of the 26 global emerging-market currencies tracked by Bloomberg. The South African Reserve Bank’s main lending rate stands at 7 percent, while the U.S. Federal Reserve’s benchmark rate is between zero and 0.25 percent.

Stocks around the world declined as New York-based CIT Group Inc. filed for bankruptcy yesterday, raising concerns about the pace of the U.S. economic recovery. The MSCI Asia- Pacific index of regional stocks slumped 1.5 percent, after the Standard & Poor’s 500 Index fell 2.8 percent on Oct. 30.

“The sell-off in U.S. stocks was significant and is the root of the volatility we are seeing,” said George Glynos, managing director of Econometrix Treasury Management, a bond and currency adviser. “Because the rand is a fairly liquid currency and exposed to the commodity cycle it’s very sensitive to global growth outlook.”

The price of the benchmark 13.5 government bond, due September 2015, fell 18 cents to 122.93 rand, with the yield climbing 3 basis points to 8.46 percent.

To contact the reporter on this story: Patricia Lui in Singapore at plui4@bloomberg.net Janice Kew in Johannesburg at jkew1@bloomberg.net.

Last Updated: November 2, 2009 03:16 EST