Mexico peso dips slightly as investors eye ratings

(Recasts throughout; adds analyst's comment)

MEXICO CITY Nov 2 (Reuters) - Mexico's peso weakened slightly on Monday despite strong U.S. factory data as ratings agencies said they need to see the country's final budget before deciding if the country gets a downgrade.

The peso MXN= MEX01 dipped 0.11 percent to 13.2125 per U.S. dollar. Mexico's stock exchange was closed for a local holiday.

Data showed that U.S. manufacturing activity hit its highest level in 3-1/2 years last month, boding well for Mexico's export demand.

Healthy U.S. economic data often helps the peso, but investors have their eyes trained on a tax hike package passed this weekend by Mexico's Congress to curb the country's dependence on waning oil exports. For details, see [ID:nN01396043]

Standard & Poor's and Fitch Ratings, which have warned of a possible downgrade to Mexico's debt ratings unless it boosts tax collections, both told Reuters on Monday that even with the package, they need to see a final 2010 budget before making any decisions on the country's sovereign rating. [ID:nN02443011]

A downgrade would likely push some investors wary of risk to dump peso-denominated assets.

With the Mexican budget's revenue bills mostly wrapped up -- including a hike in the value-added tax that was approved over the weekend -- lawmakers are expected to pass a spending package by mid-November to conclude the budget process.

Many investors, banks and economists think the rating agencies will not be impressed by the revenue plan approved by lawmakers, which would make public coffers depend more on hopes of high oil prices than President Felipe Calderon had proposed. [ID:nN31426675]

"A downgrade is probably coming, the question is if the outlook will be stable of negative," said Win Thin, an emerging market strategist at Brown Brothers Harriman in New York.

Other analysts, however, think Mexico could eke by with its rating intact.