Mexico sending delegation to Brazil to save auto trade deal

MEXICO CITY Feb 4 (Reuters) - Mexico is sending a delegation to Brazil next week in an effort to save a free trade deal on automobiles as Latin America's biggest economy steps up protection of its manufacturing sector.

Mexican diplomats and auto industry representatives will travel next week to Brazil for talks starting on Thursday, a source at Mexico's foreign ministry told Reuters on Saturday.

Brazil wants Mexico to take more of its buses and trucks, which would mean new terms have to be added to their agreement. Mexico's President Felipe Calderon and Brazil's President Dilma Rousseff agreed in a telephone call to start talks, the source said.

Rousseff told Calderon "the agreement as it stands cannot continue," the source at Mexico's foreign ministry said.

Mexico is the third-largest source of imported cars in Brazil, outpacing Brazilian auto exports to Mexico. In September Brazil announced a tax increase on some imported cars.

Brazilian manufacturers have wilted under the weight of a strong currency, rising labor costs and high taxes, causing the industrial sector to post nearly flat growth in 2011.

Meanwhile, Mexico's relatively weaker peso has made its exports more attractive abroad, helping units of American, Japanese and European automakers such as General Motors, Nissan and Volkswagen export a record 2.1 million vehicles last year.

Brazil intervened on Friday in the foreign exchange market to bat down its currency for the first time this year, while Colombia also revived its dollar buying program to shield its exporters from the impact of a stronger local peso.