Mexico peso slips, bonds up after drop in inflation

* Peso dips 0.29 pct as Greece fears hits global markets

* Stock index up 0.17 pct, bonds gain as inflation falls

* Analysts see capital fleeing Europe for Latin America (Recasts, adds comments and background)

MEXICO CITY, April 22 (Reuters) - Mexico's peso weakened on Thursday after Greek debt was downgraded, while bonds gained after a surprise drop in early April inflation supported bets the central bank will hold off on raising interest rates.

The peso MXN= MEX01 slipped 0.29 percent to 12.216 per U.S. dollar, paring steeper earlier losses.

Mexico's benchmark government 10-year peso bond MX10YT=RR rose in price, pushing its yield down 4 basis points to bid 7.41 percent. In stock trading, the IPC index .MXX rose 0.17 percent.

Moody's cut Greece's sovereign rating by a notch and placed the rating on review for a further possible downgrade, spurring losses in global equity markets and emerging market currencies. For details see [ID:nLDE63L0SF]

Earlier, European data showed Greece's budget deficit was worse than previously thought.

"This is injecting a lot of fear," said Ramses Villela, head of currency trading at Bulltick Capital Markets in Mexico City.

The bond's yield briefly traded at a 15-month low after a surprise drop in Mexican inflation data for early April suggested the country's central bank will hold off on raising interest rates for some time. For details see [ID:nN22248126]

Analysts said concerns about fiscal troubles in some European countries were boosting the appeal of Mexican assets, helping stocks and bonds gains while the currency pared steeper earlier losses.

"With all the problems in Greece, we are seeing flows that are being redirected here," said Juan Jose Resendiz, head of analysis at brokerage Arka in Mexico City.

Mexico's peso has recently traded at its strongest levels in 1-1/2 years, backed by signs of recovery in the closely linked economies of the United States and Mexico.

"In general, the European effect is favoring Mexico. Capital is fleeing Europe for Mexico, and in the short term the peso could get to 12 per dollar," said Jaime Ascencio, an analyst at Actinver brokerage in Queretaro.

The IPC stock index rose to 33,573, helped by gains in top U.S. cement supplier Cemex after data showed surprisingly strong March existing home sales in the United States.

Shares in Cemex (CMXCPO.MX) rose 2.61 percent to 13.36 pesos while top retailer Wal-Mart de Mexico (WALMEXV.MX) added 0.58 percent to 31.21 pesos. (Reporting by Michael O'Boyle and Jean Luis Arce)