Mexico peso up on U.S. recovery hopes; bonds gain
MEXICO CITY, Jan 6 (Reuters) - Mexico's peso firmed sharply on Tuesday on hopes a planned stimulus package would help the United States pull out more quickly from its recession, while debt prices hit fresh 8-1/2 month highs.
The peso currency MXN=MEX01 strengthened for the fourth straight session, gaining 1.24 percent to 13.33 per dollar.
The benchmark government 10-year peso bond MX10YT=RR rose 0.713 in price, pushing its yield down 11 basis points to 7.58 percent.
Expectations that U.S. President-elect Barack Obama will offer $310 billion in tax cuts as part of a $775 billion plan to support the economy have helped raise investors expectations that the U.S. economy could rebound faster than others.
That bodes well for Mexico which sends around 80 percent of its exports to its northern neighbor.
"The reactivation of the U.S. economy implies a greater recuperation in flows of remittances and exports," said Enrique Trejo, head of currency trading at Ixe brokerage.
In 2008, the peso lost 21 percent as investors dumped emerging market assets during the global credit crisis.
The fallout from the crisis is expected to push the Untied States yet deeper into recession during the first part of this year and analysts warn a string of grim economic data could undermine recent gains in emerging market assets.
Analysts expect Mexico's central bank soon could begin to relax its key interest rate from 8.25 percent to boost the slowing economy.
The spread between benchmark U.S. and Mexican rates has widened during 2008 to 8 percent, making peso-denominated debt more attractive.
"Investors are deciding they want to take advantage of the spread now," said a trader in Monterrey.
The benchmark IPC stock index .MXX slipped 0.26 percent to 23,179 points, hit by losses in top retailer Wal-Mart de Mexico (Walmex) (WALMEXV.MX), which fell 3.16 percent to 36.75 pesos.
UBS (UBSN.VX) (UBS.N) cut its recommendation Walmex to "sell" from "neutral" in anticipation of slower sales due to tough economic conditions. (Reporting Michael O'Boyle; Editing by Tom Hals)
