The rand lost its firm footing by midday on Thursday amid rumours of a threat of a debt default by Dubai World.

Government-owned investment company Dubai World, which has almost $60-billion worth of liabilities, asked creditors to postpone its forthcoming payments for six months.

At 12.01am the rand was bid at 7.4222 to the dollar from 7.3200 at its previous close. It was bid at 11.1947 to the euro from its previous close of 11.0766 and was at 12.2775 against sterling from 12.2275.

The euro was bid at $1.50777 from $1.5135 overnight.

A local trader said: "The pound is taking a hammering on the Dubai story. While nobody is quite sure what it means at the moment, there are stories coming out of Europe that it may leave UK banks exposed.

"If that is the case, then obviously investors will get nervous and take risk off the table, which then translates into a weaker rand.

"We have a target of 7.53 against the dollar," the trader said.

Dow Jones Newswires said that the threat of a debt default by Dubai left investor appetite for risk on the wane and the US dollar recovering some of its recent sharp losses. After falling to a 14-year low at Y86.29, the US currency has bounced back to Y86.90, helped by talk that the BOJ could intervene. The euro was down at $1.5068 and sterling at $1.6527.

The cost of insuring sovereign debt issued by Dubai increased again early Thursday, according to data provider CMA.

It now costs $570 000 to insure $10-million of Dubai sovereign debt against default for five years, up from $440 000 at Wednesday's New York close.

The move comes after Dubai said late on Wednesday that it is to restructure its largest corporate entity, Dubai World, a conglomerate spanning real-estate and ports. The company, which has almost $60-billion worth of laibilities, will seek a six-month "standstill" on its debts with all lenders, the government said.

Bonds shrug off PPI

Bonds shrugged off a slightly higher PPI reading on Thursday and instead remained weak on a soft-looking currency.

By 11.52am the short-term government R154 bond was bid at 7.350 percent from a previous close of 7.220 percent. The medium-term R157 was at 8.440 percent from 8.360 percent at its previous close, while the long-term R186 was bid at 9.155 percent from 9.065 percent before.