Mexico peso hits 8-week low on EU contagion fear

* Peso loses 1.41 pct, bond yields rise to 1-week high

* IPC stock index sinks to 9-week low
(Recasts, adds comments and background)

MEXICO CITY, May 5 (BestGrowthStock) – Mexico’s peso sank to an
eight-week low on Wednesday, while bonds fell and stocks hit a
nine-week low as investors fretted about the potential for
wider EU contagion from the Greek debt crisis.

The peso (MXN=: )(MEX01: ) weakened 1.41 percent to 12.73 per
U.S. dollar.

“This is the fear of contagion, and we do not know where it
will stop,” said Salvador Orozco, a debt and currency
strategist at Santander in Mexico City.

The peso traded at its weakest since March 5 and has lost
more than 4 percent since last week amid growing fears the EU
debt crisis is spreading to other countries and could derail a
global economic recovery.

The yield on the government’s benchmark 10-year peso bond
(MX10YT=RR: ) bid up 7 basis points to a one-week high of 7.53
percent.

The cost of insuring against a Greek default rose to a
record high on Wednesday and the euro sank to a one-year low as
investors dumped riskier assets like emerging market currencies
and sought safe-haven in the U.S. dollar.

Greek protesters angry about the budget cuts needed in
return for a massive bailout clashed with police, while
concerns mounted the aid package would not stop the crisis from
spreading to other vulnerable euro zone countries. For details
see [ID:nSGE644093]

Confidence in Mexico’s recovery from a deep recession had
pushed the peso to an 18 month high early last week and
benchmark peso-bond yields recently hit 15 month lows.

Traders said near-record bets in favor of the peso on the
Chicago futures exchange were being liquidated as the peso’s
steep losses pushed speculators to get out of positions.

But foreign investors who have a longer-term stake in the
Mexican economy and flooded into peso bonds during the first
quarter of the year are still holding tight, he said.

“So far we have not seen them pull out,” Orozco said.

The IPC stock index (.MXX: ) fell 1.57 percent to 31,617, it
lowest since Feb 26.

Shares in miner Grupo Mexico (GMEXICOB.MX: ) lost 2.84
percent to 29.80 pesos while cement maker Cemex (CMXCPO.MX: )
shed 3.13 percent to 13.93 pesos.

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(Reporting by Michael O’Boyle, Editing by Chizu Nomiyama)

Mexico peso hits 8-week low on EU contagion fear