Mexico peso clobbered by tax woes, global selloff
(Recasts; adds closing stock prices)
MEXICO CITY, Oct 26 (Reuters) - Mexico's peso sank by its most in more than three weeks on Monday and bonds hit a five-week low as a global selloff in riskier assets added to concerns the country's Senate could reject new tax hikes.
The peso's losses were steep enough to spur the central bank to sell dollars under an extraordinary auction mechanism for the first time since Sept. 1.
The tax bill, which was passed last week by the lower house of Congress in a bid to curb Mexico's dependence on revenue tied to declining oil output and stave off a debt downgrade, is being debated in the Senate, where the opposition is split on whether to reject key tax hikes. For more, see [ID:nN26199261] and [ID:nN26491560]
"The perception on the tax reform has deteriorated. Things have gotten much more complicated and it is uncertain what could be approved," said Rodolfo Navarrete, head of analysis at Vector brokerage in Mexico City.
The tax plan concerns were exacerbated by a steep selloff in riskier assets on Monday as global stocks fell, the U.S. dollar rebounded and commodity prices dropped.
"This is an indication that risk appetite has turned around and it just isn't there anymore," said Beat Siegenthaler, head of emerging markets strategy at TD Securities in London.
The peso MXN= MEX01 lost 1.71 percent to 13.3022 per U.S. dollar, spurring Mexico's central bank to sell $250 in dollars at a price that is 2 percent above the currency's fix rate from the prior session.
The government's benchmark 10-year peso bonds MX10YT=RR bid up 5 basis points to yield 8.15 percent. Its price bid down 0.307 of a point to 102.245, slightly paring losses after hitting its lowest since mid-September.
Analysts said proposals from opposition senators to reject a 1 percentage point increase in the country's value added tax could increase the chance that Wall Street ratings agencies follow through with threats to downgrade Mexico's debt.
"There is greater uncertainty about the decision on the fiscal package for 2010, which could lead to a downgrade of Mexico's rating if it does not turn out favorably," Invex brokerage wrote in a report to clients.
The IPC stock index .MXX dropped 1.1 percent to 30,280.08 points, its steepest one-day drop since Oct. 1.
Shares in cement maker Cemex (CMXCPO.MX) shed 5.12 percent to 15.76 pesos ahead of its earnings report, due on Tuesday, where its third-quarter net profit is seen sliding 9 percent, according to a Reuters survey.
Offsetting losses, America Movil (AMXL.MX), Latin America's top cellphone operator, rose 1.22 percent to 30.69 pesos ahead of its quarterly report.
After the market close, America Movil posted a 51 percent rise in third-quarter net profit citing a pickup in new subscribers and lower financing costs. [ID:nN26208722]
