Mexico peso, bonds gain on tax overhaul optimism

(Recasts, adds comment, debt movement)

MEXICO CITY, Sept 28 (Reuters) - Mexico's peso firmed sharply on Monday and bonds gained, helped by speculation that the main opposition party would help approve tax reforms needed to wean the government off revenue from declining oil output.

Also supporting the peso was a worldwide stock rally on merger and acquisition activity that boosted confidence in a global economic recovery.

The peso MXN= MEX01 gained 0.55 percent 13.4987 per U.S. dollar, breaking three session of losses, while the IPC stock index .MXX climbed 2.16 percent to 29,382.

The dominant opposition party is studying possible support for a 2 percent sales tax that is the cornerstone of President Felipe Calderon's plan, if food and medicine are excluded. For more see [ID:nN28515105].

"The good news is that the PRI is being flexible," said Luis Flores, an economist at brokerage IXE in Mexico City.

Mexico is facing mounting pressure to widen its tax base, one of the weakest in Latin America, as oil production declines at its major fields.

Wall Street ratings agencies have threatened to downgrade Mexico's debt if lawmakers do not curb the country's dependence on oil, which funds nearly one-third of the federal budget.

The government's benchmark 10-year peso bond MX10YT=RR bid down 2 basis points to yield 7.91 percent.

"We have seen some flows from foreigners betting on a favorable resolution to the tax debate," said a strategist in Mexico City.

Among the latest in a spate of global acquisitions, Xerox Corp (XRX.N) said it will pay $6.4 billion in cash and stock for Affiliated Computer Services Inc (ACS.N), expanding the copier company into data management and outsourcing.

The news helped stock markets around the world rebound from steep losses last week, when Mexico's currency lost more than 2 percent and stocks shed 4 percent.

An uptick in mergers and acquisitions is considered a bullish sign as it suggests companies are more optimistic about the economy and see value in the market.

Mexico, which sends more than 80 percent of its exports to its northern neighbor, is depending on a rebound in the U.S. economy to pull it out of a deep local recession.

In stock trading, shares in miner Autlan (AUTLANB.MX) surged 9.91 percent to 31.94 pesos, its biggest one-day jump in four months, after the base metals producer reopened its Durango mine, which accounts for 14 percent of its production and had been shuttered due to the global slowdown.

Breadmaker Bimbo (BIMBOA.MX) gained 4.30 percent to 74.45 pesos while index heavyweight America Movil (AMXL.MX), the biggest wireless operator in Latin America, rose 1.56 percent to 29.23 pesos. (Reporting by Michael O'Boyle and Jean Luis Arce; Editing by James Dalgleish)