By Olivia Kumwenda-Mtambo and Tanisha Heiberg
PRETORIA (Reuters) - South Africa's biggest trade union called on President Jacob Zuma to quit on Tuesday, in the wake of a cabinet reshuffle that has cost the country one investment-grade rating and deepened a rift within the ruling African National Congress (ANC).
Zuma's sacking of respected finance minister Pravin Gordhan in the reshuffle last Thursday has outraged his opponents and even some of his allies, undermining his authority as president and threatening to split the ANC, which has governed South Africa since the end of apartheid in 1994.
The rand, which fell as much as 1.9 percent at the start of trading on Tuesday, turned 1 percent firmer through the day as calls for Zuma to quit came in from unions, religious leaders, civil society and the opposition - although one analyst said he retained strong support within the party.
The ANC said late on Tuesday that it will brief media on Wednesday on decisions taken by its senior officials after two days of meetings over the fallout from Zuma's cabinet changes.
Cosatu, the biggest union and an ally of the ANC, joined the chorus of criticism, saying it no longer believed in Zuma's ability to lead, and that it wanted to restructure its alliance with the party.
"The time has arrived for him to step down and allow the country to be led forward by a new collective at a government level," Cosatu said in a statement.
It later said it would meet Zuma "as soon as possible" at his request to discuss the cabinet reshuffle.
Zuma himself, in his first public comments since he fired the internationally respected Gordhan, said that fiscal policies would be unchanged and that people should remain calm.
Rating agency S&P Global Ratings cited Gordhan's dismissal as one reason for its downgrade of South Africa to "junk" in an unscheduled review on Monday.
In a bid to reassure markets, Zuma said he expected the addition of "many young ministers" to "add renewed energy into Cabinet and the executive".
"With regards to the finance portfolio, we reiterate that while the political leadership has changed, government's overall policy orientation remains the same," Zuma said.
He called for a truce within the government as well, saying public disagreements "demoralise our people and create confusion".
Cosatu is the second big ANC ally to call on Zuma to quit after South Africa's Communist Party urged him to go last Friday.
"It's a deep dagger," political analyst Daniel Silke said of the union's withdrawal of support.
But Nomura analyst Peter Attard Montalto said Zuma would survive the talks going on at ANC headquarters despite calls from some factions for him to go.
"Ultimately, they are not respected by the Zuma faction and their call that he resign is therefore largely irrelevant. The same goes for the SACP and Cosatu. Factions are already set and it's unlikely there will be a swing against Zuma," he said.
RATES TO RISE?
Zuma said the government remained committed to measured fiscal consolidation that stabilises rising public debt. But it also aims to radically transform the economy "to include the black majority in the ownership and control," he said.
More than 20 years after the ANC ended white-minority rule with Nelson Mandela at its helm, inequality festers. Black people make up 80 percent of the population, yet the lion's share of the economy in terms of ownership of land and companies remains in the hands of white people, who make up about 8 percent of the population.
New finance minister Malusi Gigaba told a news briefing the ratings cut, which will push up borrowing costs, would put an even greater focus on growing the economy, and he said he would address the issues raised by S&P.
"Despite our current challenges, now is not a time for despondency," he said, noting that local currency debt, which makes up about 90 percent of 2.2 trillion rand (129 billion pounds) South Africa owes, is still rated investment-grade.
But deputy central bank governor Daniel Mminele said the downgrade was a serious setback and the bank would act if political events caused the favourable interest rate outlook to reverse, suggesting it may have to contemplate rate hikes.
Rating agency Moody's has said it is reviewing the Baa2 credit rating it assigns South Africa, two notches above junk, a process that could take 30 to 90 days.
Half of the ANC's Top Six group of officials including Deputy President Cyril Ramaphosa and Secretary General Gwede Mantashe have publicly criticised Gordhan's sacking.
But Zuma, also one of the Top Six, has the support of two other members and influential groups in the ANC, sources said.
The main opposition party - which has called for a no-confidence motion against Zuma - wants parliament to return from recess to debate the "crisis" triggered by the reshuffle.
Previous no-confidence motions in parliament against Zuma have failed as the ANC has a commanding majority there.
(Reporting by Johannesburg bureau; Writing by James Macharia; Editing by Hugh Lawson)