Jan. 24 (Bloomberg) -- Mexican consumer prices rose less than expected in the first two weeks of January as the cost of tomatoes fell.

Prices increased 0.33 percent in the first fifteen days of the month, the central bank said today, below the 0.37 percent rise forecast by economists. The inflation rate in the first half of December was 0.39 percent.

Today's report allayed concerns that soaring tortilla costs will fan inflation and spur the central bank to raise borrowing costs. Global demand for feed corn to produce ethanol fuel pushed up corn prices to a 10-year high this month, boosting the cost of Mexican staple foods.

``This number on inflation is going to decrease the number of believers who expect a rate increase,'' said Cristina Panait, an emerging-market analyst at Los Angeles-based Payden & Rygel.

Banco de Mexico may cut rates by a quarter-point to 6.75 percent in the second half of 2007, Panait said.

Mexican local-currency bonds rose for the first time in four days. Concerns accelerating inflation would erode the value of peso assets had pushed up the yield on Mexico's benchmark 10- year bond by 36 basis points in January.

The yield on Mexico's 8 percent peso bond due in December 2015 fell 1 basis point, or 0.01 percentage point, to 7.92 percent today. The price rose 0.09 centavo to 100.51 centavos per peso, according to Santander Central Hispano SA. Prices move inversely to yields.

Prices Rise

Prices, excluding energy and fresh food, rose 0.35 percent in the first half of the month on tortillas, the bank said today. Core inflation was 0.30 percent in the first two weeks of December.

``A rise in food and tortilla prices that are associated with increasing corn costs are supply shocks that alone wouldn't make the central bank need to raise rates,'' Ricardo Amorim, chief Latin America economist at WestLB in New York, said before the release of the inflation report.

Mexico's bank will hold the benchmark lending rate at 7 percent for a ninth straight month at its next meeting on Jan. 26, according to all 15 economists surveyed by Bloomberg. The bank last cut interest rates in April, ending a campaign that brought borrowing costs down by 2.75 percentage points from 9.75 percent in August 2005

Mexico's peso today rose 0.1 percent to 10.9369 per dollar.

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

Last Updated: January 24, 2007 19:37 EST