JOHANNESBURG: South Africa's rand slumped as much as 2 percent on Wednesday and government bonds sold off, as the economy entered recession and a dollar rally stoked another sell-off in local assets.

At 0920 GMT, the rand traded 1.5 percent weaker at 15.5775 versus the dollar, after hitting a low of 15.6925 earlier in the session.

The yield on the benchmark rand-denominated government bond due in 2026 rose 8 basis points to 9.29 percent, striking its highest since December, and dollar bonds fell across the curve.

Statistics South Africa said on Tuesday that gross domestic product (GDP) declined 0.7 percent in the second quarter, after a 2.6 percent contraction in the first three months of the year.

The unexpected GDP contraction came as a blow to President Cyril Ramaphosa, who is trying to revive the economy and woo foreign investors.

Appetite for rand assets has been hurt by a risk-off mood that has swept through global markets in the wake of financial turmoil in Turkey and Argentina in recent weeks.

"The dollar is on the front foot at the moment and keeping most of the emerging market currencies on the back foot," said ETM Analytics analyst Halen Bothma.

"Domestic issues are exacerbating the rand weakness and underscoring the negativity around the country's growth prospects. It doesn't look like we're seeing an improvement in growth in Q3 following the negative GDP number," Bothma added.

The rand has now lost more than 3 percent since the end of last week, and analysts believe it may fall further towards the 16.00 mark.

Tuesday's GDP figures led many economists to cut their full-year growth forecasts for South Africa.

After current account figures are published on Thursday, attention is set to shift to an October ratings review by Moody's.

Moody's is the last of "big three" international ratings firms to rate the country's debt in investment grade. It has warned that South Africa's rating could suffer if it fails to boost economic growth and address debt issues.