Surprise U.S. rate cut boosts Mexico markets

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MEXICO CITY, Jan 22 (Reuters) - Mexico's peso rallied and stocks surged almost 6 percent on Tuesday after the U.S. Federal Reserve slashed interest rates in a bid to head off a recession, with investors buying heavyweights America Movil and Cemex.

The peso MXN= MEX01 firmed 0.83 percent to 10.9205 per dollar. The benchmark IPC stock index .MXX jumped 5.89 percent to 26,774 points.

In debt trading, the yield on Mexico's 10-year peso bond MX10YT=RR slid 11 basis points lower to 7.71 percent.

Shares of America Movil (AMXL.MX), the region's leading cell phone operator, gained 10.50 percent to 29.46 pesos and were among the top 10 advancers.

America Movil's sharp rise come followed a seven-session losing streak during which the stock dropped almost 20 percent.

Cemex (CMXCPO.MX), the world's No. 3 cement maker and a huge player in the U.S. construction industry, gained 8.99 percent to 25.35 pesos. Cemex too had been hit hard by the Mexican market's decline.

The Fed's surprise rate cut of three quarters of a percentage point to 3.5 percent, its biggest move in more than 23 years, was an emergency bid to lend support to a U.S. economy some fear is on the verge of recession.

Mexico's comparable overnight rate stands at 7.50 percent, offering an attractive spread to yield-hungry international investors.

"It will be enough to stop bleeding over the short term, a week or two weeks," said Francisco Diez, director of emerging markets trading at RBC Capital in Toronto, referring to the U.S. rate cut.

However, Diez warned that Latin American markets will remain sensitive to signs of weakness in the U.S. economy.

Analysts say Mexico can weather a recession in the United States, keeping growth this year around 3 percent thanks to ambitious government investment in infrastructure, increased consumer credit and high oil prices. Mexico sends more than 80 percent of its exports to the United States.

Markets around the world have tanked in recent sessions on fears a U.S. recession could drag other economies around the world down with it. On Monday, Mexico's IPC index dropped more than 5 percent. (Reporting by Noel Randewich and Cyntia Barrera; Editing by Tom Hals)