Mexico peso rallies on Congress tax plan approval

MEXICO CITY, Nov 2 (Reuters) - Mexico's peso rallied on Monday after lawmakers this weekend finalized a watered-down version of proposed tax hikes to curb Mexico's dependence on its waning oil industry.

Both houses supported a measure to raise the value added tax rate, or VAT, to 16 percent from 15 percent and raise the top income tax rate to 30 percent from 28 percent. [ID:nN01396043]

"The approval of the VAT increase is a slight positive today," said Francisco Diez, director of emerging market trading at RBC Capital Markets in New York.

The peso MXN=MEX01 firmed to as strong as 13.095 per U.S. dollar in low-volume international trade, as Mexican markets were closed for a national holiday.

The currency settled back to trade at 13.12, or 0.59 percent stronger than Friday's close, also supported by news of improving global manufacturing data, which boded well for a recovery in Mexico's exports.

Wall Street ratings agencies that have threatened to downgrade Mexico's debt if the country doesn't broaden its tax base as revenue from the national oil industry slumps due to falling crude production.

"This plan won't be enough to avoid a downgrade, (today's peso gains are) just a a 1-day move with no liquidity," Diez said. (Reporting by Michael O'Boyle, editing by W Simon )