EUROPE and its struggles to rein in its debt problems took centre stage on the global markets yesterday, with the rand and local equities once again taking strain as investors shunned riskier assets in favour of US, UK and German bonds.

The rand, a bellwether for emerging markets, and in turn risk sentiment, had its biggest percentage decline against the dollar in more than a month, while stocks fell for a second day. There has "definitely been a sea-change in sentiment", Doug Blatch, head of equities at Investec Asset Management, said.

"We need some kind of resolution (to the European crisis) one way or other, even if it's negative."

The rand weakened for a third day against the dollar, experiencing its biggest percentage drop in more than a month against the resurgent greenback. In late afternoon, it was 2,2% weaker to R8,46/$, it s lowest since the end of last month.

Out of 25 emerging market currencies tracked against the dollar by Bloomberg, the rand was the second-worst performer.

"A few days ago we were expecting the rand to move stronger. But the situation has changed dramatically for the worse," Rand Merchant Bank said in a note.

Due to lower commodity prices, mining shares dragged the JSE all share index down for a second consecutive day, ending the session 1,1% lower to the worst level in a week.

"SA is caught in any risk-off environment," Mr Blatch said.

Investors looking to safeguard their wealth have looked towards the relative safety of the US and German bonds. The yield on the 10-year US Treasury reached an all-time low of 1,40%, while the two-year German yields also slumped to as low as minus 0,08%.

Concerns over European peripheral countries saw Spanish and Italian yields jump, pointing to distress in the system.

Greece's creditors meet this week amid doubts that it will be able to honour its bail-out commitments.

Weekend reports suggest Germany and other European leaders are sceptical that they will be able to rescue the country. The overriding fear with a Greek exit from the common monetary union is that it may encourage other distressed nations considering a similar move, threatening the 13-year-old euro project.

"If Greece is formally found to be unable to comply with the bail-out programme, a deal might involve an offer to Greece for an orderly exit," Christian Schulz, a senior economist at German private bank Berenberg, said.

Economic strife in Europe has led to slowdown in growth in emerging market economies such as SA, Brazil and China.

In its annual economic report, the Reserve Bank said SA's economic growth was too slow to reduce the jobless rate and the manufacturing industry is at risk as the European debt crisis cuts export demand. The average annual growth rate in the five quarters through to March this year was 3%.

A member of the People's Bank of China monetary policy committee said China's economic expansion may cool for a seventh quarter in a row to 7,4% in the three months to September. In the second quarter, growth in the world's second-biggest economy was 7,6%, the slowest since 2009.

With Bloomberg

Problems for Rajoy: page 5