JOHANNESBURG, Feb 24 (Reuters) - South Africa's rand weakened against a stronger U.S. dollar on Friday, as an international financial crime watchdog added South Africa to its list of countries needing special scrutiny.
At 1526 GMT, the rand traded at 18.4225 against the dollar, about 1% weaker than its previous close.
The dollar index , which measures the U.S. currency against six others, was at a seven-week high after a set of strong U.S. economic data.
Global watchdog the Financial Action Task Force (FATF), which sets standards on combating money laundering and illicit financing, added South Africa to its "grey list" on Friday, a reputational knock for Africa's most advanced economy.
Being added to the list means that countries are subject to increased monitoring by the FATF on concern that they are at higher risk for money laundering and terrorist financing.
The listing is likely to increase domestic banks' cross-border funding costs and raise transactional and administrative costs across the board, said Jeffrey Schultz, Middle East and Africa chief economist at BNP Paribas.
"We also think that such a headline could create further headwinds to already fragile ZAR sentiment which is grappling with severe levels of electricity supply cuts," he said in a note.
The rand fell to a new 2023-low of 18.4850 to the dollar after the news, but then regained some ground.
South Africa's central bank and National Treasury both noted the watchdog's decision and said they would work to address its concerns.
The Treasury said it expected a limited impact from the grey-listing on financial stability and the costs of doing business with South Africa.
On the stock market, the Top-40 (.JTOPI) index closed around 2.8% lower and the broader all-share (.JALSH) fell around 2.6%.
The government's benchmark 2030 bond was weaker, with the yield up 1.5 basis points to 10.130%.
