Mexico peso rebounds from flu fear after U.S. data

(Recasts, add analyst comments, background)

MEXICO CITY, April 28 (Reuters) - Mexico's peso firmed on Tuesday, rebounding from opening losses as U.S. housing and consumer confidence data fueled hopes the recession was easing in the United States, offsetting fears about a flu outbreak.

The peso MXN= MEX01 firmed 0.35 percent to 13.867 per U.S. dollar, reversing steeper early losses of more than 1 percent due to worries that an apparent epidemic of a deadly new virus could further hurt Mexico's flagging economy.

The IPC stock index .MXX also recovered from steep early losses, falling 0.30 percent to 21,761.

A report showed the rapid pace of price declines for U.S. single-family homes slowed a bit in February, while U.S. consumer confidence rose to its highest this year with some expectations the recession is reaching a bottom.

Any sign of moderation in the U.S. downturn bodes well for Mexico, which is being dragged into its own recession due to a collapse in exports to the United States.

"Yesterday we discounted the effects of the flu, and now the markets are a little more calm," said Jaime Ascencio, an analyst at brokerage Actinver in Mexico City. "But the peso will remain volatile until it's clear we are past the critical stage of the flu."

The Mexican currency is still down nearly 5 percent against the dollar since Friday, when the government first said the deadly new virus, which has killed up to 149 people in Mexico, was a completely new strain.

The outbreak raised worries of a sharp drop in foreign tourism while the extension of school closures across the nation stoked concerns that a potential prolonged and widespread epidemic could weigh further on the economy.

Economists expect the epidemic could shave at least an additional half percentage point off economic growth.

Still, analysts expect the Mexican currency will bounce back as the flu outbreak stabilizes, helped by massive international credit lines from the U.S. Federal Reserve and the International Monetary Fund.

"Taking into account the two credit lines Mexico has with the Fed and the IMF, and Mexico's ability to finance its current account deficit with remittances and FDI (foreign direct investment) (even under conservative assumptions), we continue to expect the Mexican peso to close the year at $13.25," Carlos Peyrelongue, an analyst at Merrill Lynch, wrote in a report.

Also weighing on local markets was a report that Bank of America Corp (BAC.N) and Citigroup Inc (C.N) may need more capital, which revived fears about the health of the financial sector in the United States, Mexico's top trading partner.

In stock trading, shares in America Movil (AMXL.MX)(AMX.N), Latin America's biggest cell phone operator, lost 1.17 percent to 21.17 pesos ahead of its first-quarter earnings report, due after the market close on Tuesday. (Reporting by Michael O'Boyle; Editing by James Dalgleish)