The rand stumbled yesterday, pressed by importer demand, and analysts said its failure to capitalise on the dollar's weakness raised questions about its ability to sustain current levels.

Speculation also mounted that the Reserve Bank would cut interest rates next month, reducing yields on the country's bonds and money market deposits.

The currency dipped to a session low of R7.43 to the dollar - a loss of about 22c on the day - as importers and London banks snapped up the dollar, triggering stop losses. In late trading it was at R7.3463, for a loss of more than 13c on the day.

The currency has gained 34 percent against the dollar in the past six months as interest rates much higher than in the US and Europe have lured investors.

Money supply data released on Monday suggested inflation was slowing, giving the Reserve Bank room to start cutting interest rates next month. Colen Garrow, the chief economist at Brait Securities, said: "Should rates be eased next month, a narrower South Africa- US interest rate differential might brake the rand's stellar rise."

This would encourage some profit taking on the rand Nazmeera Moola, an economist at Merrill Lynch, said in a report: "We remain convinced the monetary policy committee will cut rates in June by 100 basis points and will be forced to continue cutting at most of their subsequent meetings.

"The Reserve Bank should have no difficulty in meeting its inflation target of 3 percent to 6 percent next year."

Amir Ben-Gacem, an emerging markets strategist at HSBC in London, said: "At current levels people are questioning if the rand is sustainable. "We are in a period where the market is reassessing the rand's potential for further strength, and we might be going into a period of volatility." The rand touched a 32-month peak of R7 .05 to the dollar last Monday, but has bounced off that level. This Monday it staged a spirited pullback from R7.5575 to close at R7.21 in New York.

Analysts said the rand's inability to track the euro's leap to a four-year high against the dollar yesterday created negative sentiment among investors and dented hopes that it could reach the key R7 level in the short term.

The euro is the currency of South Africa's biggest trading partners. Ben-Gacem said: "It will be hard to justify or to argue in favour of further significant rand strength going forward, at least for the next couple of weeks.

"The next couple of sessions will be key for investors and exporters to make up their mind on whether this is just a pause or are we going to correct further. "Breaking R7 now, after what we have seen in the past week, seems a bit less likely." He said the rand seemed to have run out of steam.

Analysts said factors working against further rand strength included the deteriorating trade balance and a moderation in commodity prices. They said key levels to watch were R7.50 to R7.55 to the dollar. Bonds showed small gains. The yield on the long-dated R153 was bid 4 basis points stronger at 10.06 percent after earlier firming to 10.035 percent.

The yield on the short-dated R150 was bid 6 basis points stronger at 10.92 percent. In London early yesterday afternoon, the euro surged to fresh four-year highs against the dollar, sterling and the yen, riding a wave of investor concerns about the health of the US economy ahead of a Federal Reserve meeting later.

The euro charged to $1.1358 and climbed above ¥134, also a four-year high, while the dollar fell to one-month lows against the Japanese currency at ¥118.07.