* Rand lowers to 2-week lows
* Stocks dip led by banking sector (Updates figures at market close)
JOHANNESBURG, Jan 10 (Reuters) - South Africa's rand weakened as much as 1.7 percent on Wednesday to its worst performance in nearly three weeks after the ruling African National Congress said an early exit for President Jacob Zuma had not been discussed at a party meeting.
It later recouped some losses.
Initially hit by softening demand for emerging market assets as global bond yields picked up, the rand's losses accelerated to a session-low 12.55 shortly after the ANC Secretary-General Ace Magashule told reporters Zuma's removal was not on the agenda of a meeting of the party's top decision-making body.
It was later 0.87 percent weaker at 12.4450 per dollar.
The rand has swung between 12.2275 and the upper 12.50s for the first two weeks of the year, pushed and pulled by mostly rumour-fuelled bets of a Zuma resignation before his term ends in 2019.
"The rand, and markets generally, at the moment have been very headline driven. And the ANC meeting only ends on Friday so there will be more headlines and that means rand volatility should continue," said trader at RMB Jim Bryson.
"It's really difficult to call, it needs to close above 12.52 to get out of these ranges, but a test of around 12.20 cannot be totally discounted," Bryson said.
The rand has rallied since mid-December, supported by investors' hopes that the newly elected leader ANC head Cyril Ramaphosa would push through business-friendly policies.
The rally has since stalled, with signs of higher rates in the United States shifting some of the focus back to fundamentals, although analysts said a decision on Zuma remained the main swing factor.
"He (Ramaphosa) is likely to do everything in his power to reduce Zuma’s influence and to facilitate a rapid end to his time in power. That is rand positive," said analyst at Frankfurt-based Commerzbank Elisabeth Andreae.
Bonds tracked the weaker currency, with yield on the benchmark paper due in 2026 up 7 basis points to 8.655 percent.
In equities, the benchmark Top-40 index slipped 0.03 percent to 53,168 points while the All-Share index declined 0.22 percent to 59,980 points.
The banking sector lowered 1.03 percent while general retails fell 1.55 percent on lower investors appetite for emerging markets.
"International invertors are lowering their exposure to emerging markets," said Cratos Capital equities trader Greg Davies.
Nedbank fell 2.32 percent to 254.20 rand, FirstRand lowered 0.62 percent to 63.00 rand and Barclays Africa weakened 0.99 percent to 174.46 rand.
Further losses were curbed by the local bullion sector which lifted 2.05 percent on the back of a jump in gold prices to its highest level in nearly four months.
AngloGold Ashanti rose 3.62 percent to 133.50 rand and Gold Fields lifted 0.87 percent to 52.45 rand. (Reporting by Mfuneko Toyana and Tanisha Heiberg Editing by Jeremy Gaunt)