Mexico peso surges on Moody's outlook, stocks slip

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MEXICO CITY Aug 5 (Reuters) - Mexico's peso surged to a two-month high on Wednesday after credit rating agency Moody's affirmed Mexico's sovereign ratings with a stable outlook, easing fears of weak fiscal accounts and a possible downgrade.

The peso MXN= MEX01 gained 0.62 percent to 13.051 per U.S. dollar, breaking a key resistance level of 13.10, to hit its strongest since June 1.

The yield on the government's benchmark 10-year peso bond MX10YT=RR was flat in volatile trade after initially gaining on the news from Moody's.

Moody's Investors Service affirmed Mexico's stable ratings outlook, adding that the country, which has been hit hard by the U.S. economic downturn, demonstrates an ability to access capital markets and has a "robust government debt profile."

"This compensates for pessimistic outlooks on Mexico," said Salvador Moreno, an economist at ING in Mexico City.

Mexico's peso has lagged gains in other emerging market currencies on fears of a sluggish U.S. recovery and expectations that rating agencies could downgrade Mexico's debt this year if lawmakers do not overhaul tax legislation.

While Brazil's currency, the real BRBY, surged to an 11-month high this week, Mexico's peso has been unable to hold on to gains close to or below 13 per dollar since late last year after it tumbled against the dollar.

Traders said Mexican firms worried about covering dollar debts are snatching up the peso at 13.05, limiting gains as global funds and foreign banks bought the peso.

Investors looking to beat paltry yields offered in other markets are starting to look to the peso, which could help it close the gap between it and other emerging market currencies.

"We could finally be close to breaking the 13 level. The carry trade is starting to get attention. Funds and foreign banks are entering the peso again," said Enrique Trejo, head of currency trading at IXE brokerage in Mexico City.

The IPC stock index .MXX reversed losses to edge into positive territory, up a scant 0.05 percent at 27,882 after closing on Tuesday at its highest since July 21, 2008.

Stocks had been weighed down by U.S. data showing more job losses and weakness in the services sector in July, which hit confidence in the strength of the U.S. economic recovery.

The U.S. downturn has driven its southern neighbor Mexico into what is expected to be its deepest recession since 1932, and recovery could be hobbled by sluggish U.S. growth.

Shares of America Movil (AMXL.MX), Latin America's top wireless provider, lost 0.67 percent to 29.76 pesos while top retailer Wal-Mart de Mexico (WALMEXV.MX) fell 0.65 percent to 46.00 pesos.

Walmex is expected to file sales results after the market close on Wednesday. A Reuters poll of sector analysts forecast the company's same-store sales may have risen 3.4 percent last month, compared with a 4.6 percent jump in July of 2008. (Reporting by Michael O'Boyle)