The country’s seasonally adjusted Purchasing Managers’ Index (PMI) rose to 52.5 points in December, ending four consecutive months of declines that drove it to the neutral level of 50 in November, sponsor Investec said.

Manufacturing is the biggest sector in SA’s economy after financial services, accounting for 16.4% of gross domestic product.

A pronounced slowdown would hit official plans to spur faster growth in Africa’s biggest economy and create more jobs to reduce an unemployment rate of around 26%.

"The renewed strength of the rand currency will reduce the competitiveness of the local manufacturing sector," said Andre Roux, head of fixed income at Investec Asset Management.

"Although the buoyant growth and demand conditions in the wider economy bode well ... currency strength has some dampening effect on the sector’s growth trajectory," he said in a statement.

The rand scaled a fresh eight-month peak of 5.9660 against the retreating dollar on Monday, taking its gains against the greenback so far this year to more than 6.%

The currency’s sustained strength over the past few years has already been blamed for a sharp widening of the current account deficit - its broadest measure of trade - which swelled to record levels in the third quarter of 2005.

"Manufacturing will be under pressure because of currency strength, it will hold the sector back and put the handbrake on keeping growth from reaching its potential level," Brait economist Colen Garrow said.

The economy is likely to have expanded by 5% last year — its fastest pace since 1984 — and the government wants to raise growth to 6% by 2010.

Some of the key components of the Investec PMI index retraced some of their sharp November declines, including business activity, new sales orders and employment.

"This indicates that manufacturing activity picked up somewhat in December following the slowdown in the preceding months," said Investec’s Roux.

But he pointed out that the index remained well below a peak of 60 hit in July 2005, while the recovery in the employment indice was less than convincing.

"There seems to be some evidence of further contraction of the labour market, albeit at a slower rate compared to November," Roux said.