Mexico spends tenth of foreign reserves to aid peso
(Recasts, updates market action, adds detail, quote from president, byline)
MEXICO CITY, Oct 10 (Reuters) - Mexico's central bank made its most aggressive attempt yet to prop up the peso on Friday, ratcheting this week's dollar sales up to a tenth of foreign reserves, as the currency was mauled again.
Faced with a tide of buyers seeking dollars, the central bank sold $6.4 billion on Friday in three auctions, lifting the total sold since Wednesday to $8.9 billion, more than 10 percent of the $84 billion the bank reporting holding as of October 3.
"We have healthy and strong public finances and without them this crisis would have destroyed our economy," President Felipe Calderon said Thursday night in a televised address.
"Unlike in the past, when a lack of dollars led us into terrible crises, today we have foreign reserves of more than $90 billion and we practically have our external debt paid through the next year and a half," he said.
The dramatic intervention by the central bank only partly halted the slide in the peso MXN= MEX01 , which fell 4.02 percent to 13.07 per dollar after falling as low as 14.08.
Government bonds were also sharply lower and the stock market dropped nearly 4 percent.
Since the start of September the peso has dived nearly 27 percent while Mexican stocks have fallen 21 percent.
Investors rushed to sell stocks on Friday partly on fears that more companies may suffer the fate of the country's third-largest supermarket operator, which sought bankruptcy protection after it was unable to make debt payments because the peso tumbled.
"It's chaos," said Cesar Villanueva, an analyst at Monex brokerage in Mexico City. "The panic has been much bigger than what the central bank can do," he said.
The latest slide in Mexican financial markets came as global markets were rocked again on Friday by waves of panicked selling amid fears that the spiraling credit crunch could trigger a deep downturn in the global economy.
This week's heavy intervention in currency markets by the central bank is a break with its long-held custom of allowing markets to set the exchange rate. The central bank last sold dollars in large amounts to support the peso during the Russian financial crisis of 1998.
The currency has been battered as international investors as well as local companies have scrambled to secure dollars.
Retail group Comerci (COMEUBC.MX) and cement giant Cemex (CMXCPO.MX) both disclosed multimillion dollar losses on derivative and foreign exchange positions on Thursday.
Cemex said it has enough cash on hand to remain in business and that it had no plans to change its capital structure but Comerci was forced into bankruptcy after defaulting on its debt.
Cemex shares tumbled 17.3 percent to 8.70 pesos, weighing heavily on the IPC stock index .MXX , which slid 3.61 percent to a 26-month low of 19,605 points.
Mexican peso-denominated government bonds, once a favorite of yield-hungry foreign investors, were also hammered. The yield on the benchmark 10-year peso bond MX10YT=RR leaped 31 basis points to 8.87 percent. (Additional reporting by Michael O'Boyle; Editing by Diane Craft)
