JOHANNESBURG, May 2 (Reuters) – The South African rand strengthened on Thursday after the U.S. Federal Reserve held interest rates steady as expected and reiterated inflationary concerns.

At 0742 GMT the rand traded at 18.5050 against the dollar ZAR=D3, 0.68% stronger than its previous close.

The dollar index =USD was last trading down 0.1% against a basket of currencies.

The Fed on Wednesday signalled it is still leaning towards eventual reductions in borrowing costs, but it placed a red flag on recent inflation readings that could delay any cuts to interest rates.

The focus for South African investors on Thursday will be a manufacturing sector purchasing managers’ index and April vehicles sales data.

An absence of load-shedding (power cuts) in April would have boosted manufacturing, ETM Analytics said in a research note.

On the stock market, the Top-40 .JTOPI index and the broader all-share .JALSH index were both up about 1% in early trade.

South Africa’s benchmark 2030 government bond ZAR2030= was stronger in early deals, with the yield down 6 basis points at 10.615%.

(Reporting by Bhargav AcharyaEditing by David Goodman)