The rand firmed in the morning session on Tuesday tracking the euro, which tested 1.37 against the dollar.

At 09:00 the rand was bid at 7.6572 to the dollar from 7.7205 at its previous close. It was bid at 10.5000 to the euro from its previous close of 10.5577 and was at 11.9570 against the sterling from 12.0331.

The euro was bid at $1.3722 from $1.3652 previously.

A local currency trader said: "A firmer rand is a reaction to a higher euro. We will look at 7.62-65 against the dollar, and if the euro kicks on through 1.37, we could see the rand at 7.60.

"We will continue to track the single currency," he said.

RMB analysts noted in their morning report that currency markets were in a nervous lull. Euro/US dollar is trading a very tight range at just under 1.3700 keeping US dollar/rand at the middle of its new 7.65 ? 7.85 range.

"The Eurozone fiscal problem theme, however, has spilled into equities with the Dow Jones index dropping below 10,000 for the first time since November.

"The threat then clearly remains to the upside on US dollar/rand although, until we get a fresh bout of concern, we might be able to make a few cents on the downside ? no news being good news," RMB analysts John Cairns and Nema Ramkhelawan said.

RMB said that Thursday was shaping up to be a key day.

"Not only will we receive US retail sales data but the emergency EU summit will see ECB President Trichet in attendance and talk focussed on the fiscal problems. Expect begrudging approval of the PIGS (Portugal, Italy, Greece, Spain) budget plans and reassurance that the Eurozone is not threatened ? but frankly what else can they say?

"News flow is otherwise limited and there is not much else to say other than potential EUR/US dollar moves imply massive risks. The key level to watch is Euro/US dollar 1.3587. If this goes USD/ZAR should see 8.00, Cairns and Ramkhelawan said.

Dow Jones Newswires reported that the yen fell against high-yielding units in Asia Tuesday as an upturn in Chinese stocks helped reduce risk aversion, prompting investors to buy back riskier currencies such as the euro.

In tandem with the euro, the Australian dollar, the Swiss franc and the pound also advanced against the yen.

But dealers say the Japanese unit could make a turnaround in the near term amid lingering sovereign debt worries in euro-zone nations.

Although the European Union is slated to hold a summit on Thursday, traders expect the organization to fail to offer detailed plans on how to deal with the fiscal crisis in Greece, Spain and Portugal.

If such an event transpires, growing scepticism about the European economies could drag down local share prices, which would make more players reluctant to take risks and rekindle demand for the safe-haven yen, they said.

"It's very reckless to buy risky assets now," said Yuzo Sakai, manager of foreign exchange business promotion at Tokyo Forex & Ueda Harlow.

"Unless the European fiscal problems show signs of being solved, many investors may remain eager to buy the yen" versus its high-yielding counterparts including the euro, he said.

Sakai added the dollar should also rise back against the single unit.

As of 0450 GMT, the euro climbed to Y122.40 from Y121.97 in New York Monday and to $1.3691 from $1.3659.

Bonds steady; eye bond auction, data

South African bonds were little changed from their previous closing levels on Tuesday morning ahead of the weekly government bond auction and employment data later in the morning.

The rand was also firmer in early trade, which was also underpinning the bond market.

By 08:20 the short-term government R154 bond was bid at 7.315 percent and offered at 7.115 percent after closing at 7.210 percent on Monday and the medium-term R157 was at 8.360 percent, unmoved from its previous close. The long-term R186 was bid at 9.130 percent and offered at 9.080 percent from 9.105 percent previously.