Mexico peso, bonds slide on downgrade speculation

(Recasts, adds detail about downgrade speculation)

MEXICO CITY, June 9 (Reuters) - Mexico's peso fell sharply on Tuesday and bonds weakened on speculation the country's debt rating could be downgraded.

The peso MXN=MEX01 was down 0.88 percent at 13.57 per U.S. dollar.

"There are strong rumors in the market that our rating is at risk because of our fiscal deficit," one trader in Mexico City said.

In debt trading, the yield on Mexico's benchmark 10-year bond MX10YT=RR rose 16 basis points to 8.18 percent as the price fell over a point.

Ratings agencies Fitch and Standard and Poor's have warned in recent months that they could downgrade Mexico's credit rating because of the country's worsening fiscal health.

"Worries continue that Mexico's sovereign rating could be reduced," Mexico City's Ixe brokerage said in a report.

The International Monetary Fund's warned on Monday that some emerging economies, including Mexico, could face balance of payments troubles due to large external funding needs.

The IPC stock index .MXX added 0.62 percent to 25,086.

Banorte (GFNORTEO.MX) (XNOR.LA), which made its debut on the Madrid Stock Exchange on Tuesday, was up 1.81 percent to 33.20 pesos, giving up much of its earlier gains.

America Movil (AMXL.MX), Latin America's biggest cell phone company, added 0.88 percent to 25.12 pesos.

Mexican consumer prices fell 0.29 percent in May, more than analysts had expected, bringing annual inflation down to 5.98 percent from 6.17 percent in April, the central bank said. (Reporting by Noe Torres and Lorena Segura; Editing by James Dalgleish)