Mexico peso falls over 1 pct on US financial woes

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MEXICO CITY, Sept 15 (Reuters) - Mexico's peso slumped 1.37 percent in early trade on Monday as investors became more risk-averse following the collapse of U.S. investment bank giant Lehman Brothers.

The peso MXN= MEX01 traded at 10.742 per dollar.

Global markets fell sharply after Lehman Brothers LEH.N filed for bankruptcy and Bank of America agreed to buy Merrill Lynch MER.N.

"Rising risk aversion and continued fall in commodity prices will imply continued weakness for Latin American foreign exchange as investors continue to deleverage positions," HSBC said in a report.

The Mexican peso gained to a six-year high in August on the back of demand for local debt as the central bank tightened borrowing costs three months in a row since June, pushing the spread between benchmark U.S. and Mexican interest rates to 6.25 percentage points, its widest since late 2005.

However, worries about the prolonged U.S. credit crisis caused by bad loans, combined with lower commodity prices, have spurred investors to cut exposure to emerging market assets in recent weeks, driving the peso down almost 7 percent since the end of July. (Reporting by Noel Randewich)