Mexico stocks surge on US services data; peso dips

(Adds comment, debt movements and closing stock prices)

MEXICO CITY Oct 5 (Reuters) - Mexican stocks jumped on Monday on surprisingly strong U.S. service sector data for September, while the peso slipped, hurt by uncertainty surrounding a tax reform debate in Congress.

The U.S. services data supported hopes of an economic recovery in the United States, Mexico's top trading partner. Mexico needs a rebound in U.S. demand for its exports to pull out of the deepest local recession since the 1930s.

The IPC stock index .MXX closed up 1.87 percent at 29,214.4 after an index from the U.S. Institute for Supply Management showed the services sector expanded in September for the first time since August 2008.

"Last week we had some data that was below market expectations, but, at the end of the day, the economy is recovering. This services data shows that we are recovering little by little," said Gerardo Copca, a strategist at MetAnalisis consultancy in Mexico City.

Shares in copper miner Grupo Mexico climbed (GMEXICOB.MX) 6.55 percent to 25.70 pesos.

America Movil (AMXL.MX), Latin America's leading wireless operator, rose 2.30 percent to 29.80 pesos while cement giant Cemex (CMXCPO.MX), a top U.S. supplier, added 2.47 percent to 16.95 pesos.

While other emerging market currencies saw steep gains, the peso MXN= MEX01 slipped 0.04 percent to 13.605 per U.S. dollar. The currency pared steeper early losses as stock markets gained ground.

Mexican lawmakers have until the end of month to finish debating tax changes seen as necessary to reduce the government's dependence on oil revenue.

If lawmakers fail to widen Mexico's tax base, Wall Street credit ratings agencies have threatened to downgrade Mexico's debt.

"It is going to be a volatile couple of weeks with the deadline for the fiscal reform approaching," said Gerardo Margolis, vice president for emerging markets at TD Securities in Toronto.

The peso has lost around 6 percent since Aug. 21, hurt by speculation that Mexico's divided Congress may fail to approve the tax reforms.

Those losses have also made Mexican peso-bonds attractive to yield-hungry market players who are betting that lawmakers will eventually approve the tax package.

The government's benchmark 10-year peso bond MX10YT=RR bid down 7 basis points to 7.79 percent, its lowest in more than 4 months.

"The peso will go back to 13.20 once the tax bill is approved, so that makes current levels a very attractive entry point for foreign investors," said a strategist in Mexico City. (Reporting by Michael O'Boyle; Editing by Padraic Cassidy)