Nov. 4 (Bloomberg) -- Mexico's peso rose to a three-week high as interest-rate cuts in developed economies stoked demand for higher-yielding assets in emerging markets.

The peso joined a rally in all of the most-traded Latin American currencies and global stocks after a bigger-than- forecast rate cut by the Reserve Bank of Australia. The U.S. lowered borrowing costs last week and analysts predict the Bank of England and European Central Bank will reduce rates Nov. 6.

``There is a positive global backdrop as central banks are lowering rates more aggressively than was expected,'' said Gerardo Margolis, a vice president for emerging markets at TD Securities Inc. in Toronto. The Australian rate cut ``gave a positive impetus to emerging markets.''

The peso gained 2.3 percent to 12.4825 per U.S. dollar at 5 p.m. New York time, from 12.7775 yesterday. It touched 12.4427, the strongest since Oct. 15.

Australia's central bank cut its overnight cash rate target by three-quarters of a percentage point to a 3 1/2-year low of 5.25 percent to shore up economic growth amid the worst global financial crisis since the Great Depression. The median estimate of economists surveyed by Bloomberg was for a half-point cut.

Mexico's peso has risen 7.5 percent since reaching a record low on Oct. 23 of 14.3017. The rally comes after it posted a 15 percent drop in October, its worst monthly performance in more than a decade.

Peso Purchases

Banco de Mexico last month bought $13.1 billion worth of pesos to stem losses in the currency. The purchases have lowered central bank reserves by 11 percent from a record high in July. Reserves rose to $77.1 billion on Oct. 31 from $76.6 billion a week earlier, the central bank said today.

Yields on Mexico's 10 percent bond due in November 2036, the country's longest-term security in pesos, fell 18 basis points, or 0.18 percentage point, to 8.83 percent. The bond's price rose 2.07 centavos to 112.14 centavos per peso, according to Banco Santander SA.

Mexico's peso-denominated securities have rallied, pushing down yields on the 30-year security by 2.75 percentage points since Oct. 24, after the government said last week it planned to pare sales of its long-term peso bonds through year-end as a response to increasing demand for the shortest-term securities.

The government sold today 1 billion pesos ($80 million) of its 30-year security at a local auction to yield 8.8 percent, up from 8.67 percent at the previous auction in September. Before the plan to cut back on long-term bond sales, the government had said it would sell 4.65 billion pesos of its 30-year bonds every six weeks in the fourth quarter.

Weekly Sale

Yields fell in a weekly sale of 20 billion pesos of one-, three- and six-month bills. The yield on the one-month bill dropped to 7.1 percent from 7.22 percent, while the yield on the three-month bill declined to 7.8 percent from 8.02 percent. Yields on the six-month bill fell to 8.13 percent from 8.28 percent.

The auction results show investors are still ``seeking liquidity and safety,'' Luis Flores, an economist at Mexico City- based bank IXE Grupo Financiero SA, wrote in a note to clients.

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

Last Updated: November 4, 2008 17:27 EST