Mexico stocks sink on U.S. bailout worries

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MEXICO CITY, Sept 22 (Reuters) - Mexican stocks fell sharply on Monday on concerns a costly U.S. bailout plan for troubled financial institutions may not resuscitate a slumping economy and surging oil prices added to worries about growth.

The benchmark IPC stock index .MXX closed 2.21 percent lower at 25,131.91 points.

The peso MXN= MEX01 firmed 0.4 percent at the central bank's final 1:30 p.m. (1830 GMT) reference to 10.597 per dollar, gaining as the greenback declined broadly on worries the credit bailout would bloat the already massive U.S. deficit.

The administration of U.S. President George W. Bush is pressing Congress to approve a $700 billion rescue package to buy up bad loans related to the U.S. housing crisis. The proposal would amount to the costliest U.S. bailout for financial companies since the Great Depression.

While the rescue could help ease financial turmoil, analysts said the cost of the bailout could weigh on economic growth in the United States, the destination for around 80 percent of Mexican exports.

"Investors are looking to see how this plan comes out. Some people are pessimistic, it may not be enough to help the economy and keep the financial markets steady," said one trader in Mexico City.

Also raising fears about the U.S. economy, oil prices surged 20 percent in their biggest one-day gain on record. That renewed worries about the impact of high fuel costs on U.S. consumers.

In the currency market, the peso gave up much of its gains in late New York trading to fetch around 10.635 per dollar.

"People have priced out the possibility of financial Armageddon," said Nick Chamie, head of emerging markets research at RBC Capital Markets in Toronto.

"But that said, many people are quite concerned about the cyclical downturn in the global economy and how this financial crisis is going to compound this problem," he said.

In debt trading, the government's benchmark 10-year peso bond MX10YT=RR fell 0.307 of a point in price to bid 94.837, pushing its yield up 5 basis points to 8.56 percent.

In the equities market, shares of America Movil (AMXL.MX), Latin America's biggest cell phone operator, fell 5.35 percent to 24.58 pesos while its New York traded shares (AMX.N) lost 5.77 percent to $46.08.

Top retailer Wal-Mart de Mexico (WALMEXV.MX) lost 3.3 percent to 38.62 pesos.

Shares of Cemex (CMXCPO.MX), the top U.S. cement supplier, shed 2.89 percent to 20.14 pesos while its shares on Wall Street (CX.N) dropped 3.05 percent to $19.09. (Reporting by Michael O'Boyle and Tomas Sarmiento; Editing by Leslie Adler)