May 20, 2008 / 9:01 PM / 12 years ago

Mexico peso, stocks drop on U.S. inflation fears

(Recasts; adds quotes and details)

MEXICO CITY, May 20 (Reuters) - Mexico’s peso weakened on Tuesday and stocks fell after a key gauge of U.S. inflation rose more than expected and oil prices jumped above $129 a barrel, stoking worries about slower U.S. consumer spending.

The peso MXN= MEX01 weakened 0.27 percent at the official central bank close to 10.403 per dollar, breaking three straight sessions of gains that had pushed the currency to a five-year high.

The benchmark IPC stock index .MXX dropped 0.85 percent to 31,526.17 points.

A report showed the U.S. producer price index, excluding volatile food and energy costs, rose at its fastest pace since 1991 in the year through April. Adding to inflation concerns, U.S. crude oil prices CLc1 topped $129 a barrel on Tuesday.

“Oil prices are very negative news, obviously this multiplies inflation risks,” said Gerardo Roman, head of equity trading at the Actinver brokerage in Mexico City.

Persistent increases in oil prices could translate into higher gasoline costs and hurt consumer spending in the United States, destination of more than 80 percent of Mexican exports.

U.S. stocks .DJI fell on the inflation worries and currency analysts said that hit investor appetite for riskier emerging market assets.

“The inflation fears have generated some risk aversion with the idea the Fed could raise interest rates instead of lowering them,” said Miguel Angel Flores, an analyst at government bank Bansefi.

“An increase in rates could make growth harder in the United States,” he said.

Mexico’s peso has gained around 5 percent since the beginning of the year, boosted by record oil prices, an economy that has been largely resilient to the U.S. slowdown and the widening spread between U.S. and Mexican interest rates.

In debt trading, the government’s benchmark 10-year peso bond MX10YT=RR fell 0.065 of a point in price to bid 97.994, pushing its yield up 1 basis point to 8.05 percent.

In stock trading, shares of Cemex CMXCPO.MX, the largest U.S. supplier of cement, slipped 2.15 percent to 32.35 pesos. Its New York-traded shares (CX.N) lost 1.91 percent to $31.26.

Miner Grupo Mexico (GMEXICOB.MX), one of the world’s top copper producers, shed 2.49 percent to 77.09 pesos.

Broadcaster Televisa TLVACPO.MX, the world’s biggest producer of Spanish-language television content, fell 3.10 percent to 55.57 pesos. Its New York-traded stock (TV.N) fell 3.87 percent to $26.61. (Reporting by Michael O’Boyle and Vanessa Padilla; Editing by Andrea Ricci)

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