South Africa's rand turned positive against the dollar in volatile late Monday trade, gaining as much as 2.3 percent to a week's high in what some traders said was a retracement from oversold levels last week.

Government bonds were however weaker on the eve of Finance Minister Pravin Gordhan's medium term budget policy statement, with the market expecting the Treasury to signal more debt issuance to help cover a wider deficit than was seen in February.

Traders said financial markets paid little visible attention to President Jacob Zuma's firing of government ministers implicated in corruption.

By 1555 GMT the rand was up 2.1 percent at 7.8729 to the dollar, after earlier briefly touching 7.8595, its strongest level since October 17.

We kind of led the pack in weakness last week and I think we did go a bit too far too quickly. We were over-extended and now we're coming back to a more reasonable level, even for the euro/rand, Rand Merchant Bank trader Jim Bryson said.

But it's still obviously in the hands of the Europeans for short-term direction. If the euro comes up under real pressure again, the rand will come back towards 8.20.

Government bonds however retreated, with the yield on the 2015 bond subsequently rising three basis points to 6.73 percent and that on the 2026 note adding six basis points to 8.48 percent.

The longer end of the curve in particular has come under selling pressure in recent days as the market anticipates that Gordhan will on Tuesday announce wider fiscal deficits for the next three years, necessitating more borrowing.

Assuming that the October increase in weekly linker issuance is sustained, we believe that the Treasury will still find itself 270 million rand short for the remainder for this year and lacking 160 million rand for FY '12/'13, Absa Capital said in a note.

Increased T-bill issuance, larger weekly auctions of rand bonds, or renewed interest in the offshore market could all be used to close this financing gap.

The rand's gains had very little to do with Zuma's sacking of two ministers implicated in graft and the suspension of the police chief, traders said.

But the move would go some way towards reassuring sceptical investors Zuma is paying more than lip service on his pledge to clamp down on the scourge, which Gordhan has previously described as a cancer in Africa's biggest economy.

It was clearly the right thing to do. He could and should have acted much earlier but now was an opportune time to do it, Nomura International emerging markets analyst Peter Attard Montalto said.