Mexico peso hurt by recession worries, stocks up
(Recasts adds closing prices)
MEXICO CITY, Oct 14 (Reuters) - Mexico's peso weakened on Tuesday as investors worried a plan to rescue U.S. banks would not avert a recession in the United States, Mexico's top trading partner, while stocks lost much of their gains from earlier in the day.
The peso MXN= MEX01 weakened 0.78 percent in volatile trade to 12.50 pesos per dollar at the central bank's final 1:30 p.m. (1830 GMT) reference.
The IPC stock index .MXX closed 0.67 percent higher at 22,244.61 points after surging more than 5.5 percent in early trade, then sinking into negative territory and finally clawing its way back into positive territory.
Some investors worried that the United States may already be in a recession despite the a plan to inject major banks with $250 billion.
Bad news for the United States usually bodes poorly for Mexico, which sends around 80 percent of its exports to its northern neighbor.
"The panorama for Mexico has really clouded over," said Cesar Villanueva, an analyst at Monex brokerage in Mexico City.
Still, appetite for emerging market assets was returning across the board following the U.S. move to back its banks and similar measures implemented in Europe.
The measures helped ease the cost of lending between banks, which had skyrocketed in recent weeks and pushed financial markets into panic.
"The carry is back," said Kathryn Rooney, strategist at Bulltick Capital Markets in Miami, referring to the strategy of borrowing funds in low-yielding currencies, like the yen, to buy higher-yielding assets.
Mexico's peso regained lost ground to trade around 12.37 per dollar in late afternoon.
In debt trading, the yield on the government's benchmark 10-year peso bond MX10YT=RR fell 2 basis points to 8.77 percent.
Some analysts predict that Mexico's central bank could cut its key interest rate as soon as November from its current level at 8.25 percent, but that would still keep Mexican rates far above the paltry yields on U.S. Treasuries.
In stock trading, shares of Cemex (CMXCPO.MX), the world's No. 3 cement maker surged 14 percent to 11.24 pesos while its stock on Wall Street gained 8.07 percent to $8.97
Cemex shares were hammered last week after it disclosed multimillion dollar losses on derivative positions after the peso saw its steepest decline last week since the 1995 Tequila Crisis.
Miner Grupo Mexico (GMEXICOB.MX) climbed 9.82 percent to 9.95 pesos.
Offsetting gains, shares of America Movil (AMXL.MX), Latin America's biggest cell phone operator lost 2.66 percent to 22.72 pesos while its New York stock (AMX.N) shed 5.57 percent to $36.48 (Reporting by Michael O'Boyle)
