Mexico peso, stocks hurt by economic worries

(Recasts; adds analyst quote)

MEXICO CITY, Nov 5 (Reuters) - Mexico’s peso sank on Wednesday and stocks fell after weak U.S. economic data stoked worries that a sharp downturn in the United States could push its southern neighbor Mexico into recession.

The benchmark IPC stock index .MXX fell 3.45 percent to 20,793 after six straight sessions of gains.

The peso MXN=MEX01 weakened after riding a strong rally in emerging market currencies on Tuesday, losing 1.14 percent to 12.685 per dollar.

A report showed U.S. private employers cut a larger-than-expected 157,000 jobs in October, the highest since November 2002, and analysts said that suggested the U.S. government’s closely watched non-farm payrolls report on Friday will likely show a loss of 200,000 jobs.

Another report showed that the vast U.S. services sector shrank more sharply than expected in October.

Increasing signs of a U.S. recession bode poorly for Mexico, which sends around 80 percent of its exports to the United States.

“For Mexico, we could be talking about recession next year,” said Bartosz Pawlowski, an emerging markets strategist at TD Securities in London.

Earlier, during Asian trading hours, the peso weakened sharply on news Mexican Interior Minister Juan Camilo Mourino had died on Tuesday when the small aircraft he was traveling in crashed into evening rush-hour traffic in Mexico City.

Mourino was a close ally of President Felipe Calderon and helped him push several economic reforms through a divided Congress. He was effectively the number two in the government.

The peso slumped to nearly 13 per dollar on news of the crash, Brown Brothers Harriman said in a report, but later pared its losses.

Investigators probing the crash have found no indication of sabotage or foul play, Communications Minister Luis Tellez said on Wednesday. See related story [ID:nN05265162]

“Investors are not interpreting the episode in a negative way. They are waiting to see what the investigation will bring,” said David Beker, a strategist covering Latin America at Merrill Lynch in New York.

In debt trading, the yield on the government's benchmark 10-year peso bond MX10YT=RR rose 11 basis points to 8.92 percent.

In the equities market, shares of America Movil AMXL.MX, Latin America's biggest cell phone operator, fell 3.97 percent to 20.30 pesos while its shares in New York AMX.N lost 5.83 percent to $31.98.

Shares of top retailer Wal-Mart de Mexico WALMEXV.MX lost 5.1 percent to 35.55 pesos while miner Grupo Mexico GMEXICOB.MX fell 5.87 percent to 10.59 pesos. (Reporting by Michael O'Boyle; Editing by James Dalgleish)