South Africa's rand eases investors trade cautiously

JOHANNESBURG (Reuters) - South Africa's rand weakened on Wednesday, giving back gains that lifted it to its firmest level in 2-1/2 years as caution crept back into the market and some investors held off extending long positions in the currency. At 0640 GMT the rand was 0.33 percent weaker at 12.3100 per dollar compared to its overnight close of 12.2700 overnight in New York. On Tuesday the currency raced to 12.1950, its firmest since July 2015 and well below technical resistance of 12.25 seen as the key milestone to more gains, before quickly retreating to around 12.27. Traders said the sharp move was driven by an offshore investor selling a large batch of dollars, as well some locals lured into adding long positions. The interest however soon waned and saw the unit drift back into ranges seen in the first two weeks of 2017, with few developments on the political or economic front to tip momentum in either direction. The Reserve Bank's (SARB) monetary policy committee announces its decision on lending rates on Thursday and is widely expected to keep them unchanged at 6.75 percent for a third consecutive meeting. "The rand is stronger but oil prices are too. There is no way the committee is going to cut rates a month before a crucial sovereign rate announcement by Moody’s," said chief currency trader at Standard Bank Warrick Butler. Bonds were weaker, with the yield on the benchmark paper due in 2026 up 1 basis point to 8.485 percent. Stocks were also softer in early trade with the benchmark To-40 index down 0.11 percent. (Reporting by Mfuneko Toyana; Editing by Ed Stoddard)