REFILE-Mexico peso slides as cenbank halts dollar sales

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MEXICO CITY, July 25 (Reuters) - Mexico's peso weakened sharply on Friday after the country's central bank said it would suspend its daily auction of dollars next week, ending a mechanism that has helped prop up the currency.

The peso MXN MEX01 weakened 1.07 percent to 10.12 per dollar.

Mexico's central bank said it would suspend a daily sale of foreign reserves on Aug. 1 until further notice after the government bought $8 billion from the bank to cover foreign exchange requirements for the coming months.

The bank has been selling dollars in recent years to reduce its accumulation of international reserves.

The Mexican currency has been trading around five-year highs recently as foreign investors snapped up pesos and Mexican bonds to take advantage of the relatively wide spread between U.S. and Mexican benchmark interest rates.

Mexico's central bank has hiked its key interest rate twice since June and many economists expect the bank could raise benchmark rates again in the coming months.

Mexico's benchmark IPC stock index .MXX was up 1.01 percent at 27,149 after unexpectedly strong housing and consumer confidence data in the United States, Mexico's chief trading partner. (Reporting by Michael O'Boyle; Editing by James Dalgleish)