Nov. 21 (Bloomberg) -- Mexico’s peso posted its biggest weekly decline in over a month amid mounting concern a recession in the U.S., the nation’s biggest trading partner, will throttle demand for Mexican-made cars, electronics and beer.

The currency slumped as much as 1.9 percent today to 14.1654 per dollar, leaving it within 1 percent of a record low reached last month and prompting the central bank to purchase $400 million worth of pesos for a second straight day.

“Investors are pulling out as the economy weakens,” said Mario Copca, a currency strategist at Metanalisis SA in Mexico City. “There’s a big aversion to risk.”

The peso fell 4.8 percent this week, the most since the week ending Oct. 10, and has shed almost a third of its value since reaching a six-year high on Aug. 4.

Mexico’s peso rose 1.3 percent to 13.7199 per U.S. dollar at 5 p.m. New York time, compared to 13.9 yesterday, after Banco de Mexico’s purchases swelled the amount it’s bought to $14.4 billion worth of pesos over the past six weeks.

Investors are shunning all but the safest assets amid the worst global financial crisis since the Great Depression. Yields on the two-year U.S. Treasury note dropped yesterday to below 1 percent, the lowest level since regular issuance of the securities began in 1975, as the Standard & Poor’s 500 Index slid to an 11-year low.

Mexican local-currency bonds have plunged as foreign investors cut their holdings of the securities maturing in a year or more by 16 percent to 249 billion pesos ($18 billion) as of Nov. 11 from a record 296 billion pesos on Aug. 12, according to the latest data posted on the central bank’s Web site. Foreigners own one-fifth of Mexico’s fixed-rate bonds.

Goldman’s Recession Call

The U.S. recession will be deeper than previously predicted, Goldman Sachs Group Inc. today said. Gross domestic product will likely decline at an annualized rate of 5 percent in the current quarter and the unemployment rate will reach 9 percent by the end of 2009 from 6.5 percent last month, according to Goldman.

In Mexico, which sends about 80 percent of its exports to the U.S., the economy expanded in the third quarter at its slowest pace in at least four years. Gross domestic product grew 1.6 percent in the August-to-September period after increasing 2.7 percent in the previous quarter, the Finance Ministry said today.

Slowing growth in the U.S. has curbed foreign direct investment to Mexico, which last year provided the second- biggest source of dollar flows to the country after oil exports. Foreign direct investment fell 15 percent to $15.6 billion in the first three quarters of the year compared to the same period in 2007, the Economy Ministry said late yesterday.

Auction

In today’s central bank auction, investors offered three times more pesos than those purchased. The central bank received more than $1.3 billion in bids. Banco de Mexico has dipped into record foreign reserves to stem losses in the peso. Reserves have fallen 7 percent to $81 billion in the week ending Nov. 14 from a record high in July.

Peso purchases by the central bank have kept the currency from plunging to 15 pesos per dollar, said Ruben Fernandez, a currency trader at Grupo Financiero Monex SA.

“The bank has spent a considerable amount, but that’s what reserves are there for,” Mexico City-based Fernandez said.

Interest-Rate Swaps

Banco Santander SA today lowered its forecast for the peso for this year and the next. The Mexican currency will advance to 13 per U.S. dollar by the end of this year, compared with a previous forecast of 11.8, Delia Paredes, a senior economist for Santander in Mexico City, wrote in a report. The peso will strengthen to 12.3 per dollar at the end of 2009, compared to a prior estimate of 12 per dollar, she wrote.

Mexican local-currency bonds posted their first weekly advance in three after yields on the benchmark security surged this week to their highest since October.

The yield on the 10 percent bond maturing in December 2024 today fell 12 basis points, or 0.12 percentage point, to 9.74 percent. The bond’s price rose 1 centavo to 102.08 centavos per peso, according to Santander.

Mexico’s central bank sold today 1.2 billion pesos worth of 10-year interest-rate swaps at an average weighted yield of 10.02 percent. Investors bid for 6.65 billion pesos at an average weighted yield of 9.965 percent.

Today’s auction is the third attempt by the central bank to sell swaps in a 50 billion peso program announced last month to allow investors to hedge against swings in interest rates.

To contact the reporter on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net.

Last Updated: November 21, 2008 17:31 EST