A firm rand was range bound in afternoon trade on Tuesday, amid a period of consolidation ahead of the Monetary Policy Committee (MPC) meeting.

At 15:36 local time the rand was bid at 7.6309 to the dollar from 7.6403 at Monday's close. It was bid at 9.8114 to the euro from 9.8812 before and at 11.5636 against the sterling from 11.6144 at its previous close.

The euro was bid at US$1.2870 from $1.2938 overnight.

A local dealer noted euro/rand strength, but added that the local currency was still range bound against the greenback.

At midday, a local trader said: "I wouldn't read to much into the rand's strength at the moment. The currency is in a period of consolidation and appears to be treading water ahead of the MPC meeting on Thursday."

Dow Jones Newswires reports that the euro declined against the dollar Tuesday as investors cast cautious eyes toward European bank stress tests.

After hovering around the $1.30 level in recent trading, the euro's steep rally from $1.1876, its more than four-year low hit in early June, may have been "overdone," said Simon Smollet, senior foreign exchange options strategist at Credit Agricole CIB in London.

"How good can this stress test be?" he said.

"It's difficult to imagine how much better" the euro can trade against the dollar, no matter what the results of the stress tests, Smollet said, noting technical analysis already showed the common currency's recent gains to be overextended.

Ahead of the Friday release of the European stress tests, people familiar with the matter told Dow Jones Newswires Tuesday the results had concluded nationalized German lender Hypo Real Estate has a possible capital shortfall of €2-billion under adverse circumstances.

Investors also will dissect the stress-test criteria, Smollet said.

"People will always be vaguely cynical," he said, likely putting a cap on the euro's recent gains as investors turn cautious ahead of the Friday release of the test results.

Bonds rally on hopes of rate cut

South African bonds rallied by up to 12 basis points on Tuesday on increased hopes of a rate cut at the conclusion of the Reserve Bank's Monetary Policy Committee's two-day meeting on Thursday.

Traders said Tuesday's weekly government bond auction had also cleared "fairly aggressively", underscoring the market's strength.

By 15:45 the benchmark R157 bond was yielding 7.620% after closing at 7.740% on Monday and the 10-year R207 was bid at 8.490% from 8.585% previously. The long-term R186 was bid at 8.805% from 8.900% at its previous close.