Oct. 13 (Bloomberg) -- Mexico's peso rose the most since 1995 and Brazil's real had its biggest gain in six years as an unprecedented push by central banks to flood the global financial system with dollars buoyed demand for higher-yielding assets.

The peso climbed 6.9 percent to 12.2502 per dollar at 5 p.m. New York time, stemming a three-week rout sparked by the worst global financial crisis since the Great Depression. Brazil's real gained 7.9 percent to 2.1440 per dollar after sinking 11.6 percent last week.

``This problem started from abroad, so the solution needed to come from abroad,'' said Luis Flores, an economist at Mexico City-based bank IXE Grupo Financiero SA. The steps officials have taken in the U.S. and Europe have ``helped restore confidence.''

The peso's gain was the biggest since March 10, 1995, a day after Mexico announced tax increases and spending cuts in the aftermath of a devaluation three months earlier. The peso had an intraday decline on Oct. 8 of 13.8 percent, the biggest since that devaluation.

Mexican Finance Minister Agustin Carstens said speculators were responsible for last week's 14 percent decline in the peso, El Universal reported today. Carstens said he expects the peso to be more stable this week.

Banco de Mexico sold $8.9 billion last week, including $6.4 billion on Oct. 10 alone, to shore up the peso after it slid to a record low of 14.2927.

``It seems that Mexican authorities have deactivated the speculative bubble,'' said Alfredo Coutino, a Latin America economist at Moody's Economy.com in West Chester, Pennsylvania.

Record Reserves

Brazil's central bank sold dollars the last three days of last week, tapping into record foreign reserves of more than $200 billion to stem the real's tumble. Reserves fell $3.5 billion last week, the central bank said in a report today. The bank sold currency swaps today to further bolster the currency.

The real has plunged 27 percent from a nine-year high reached Aug. 1, more than any other currency tracked by Bloomberg, except for the Zimbabwean dollar. Mexico's peso has dropped 20 percent from a six-year high reached on Aug. 4.

Higher-yielding currencies throughout emerging markets have been hammered over the past month as investors pulled out of carry trades. In the carry trade, investors fund themselves with low-cost loans in countries such as Japan and invest in countries with higher interest rates. Mexico's benchmark rate is 8.25 percent while Brazil's is 13.75 percent.

A decline in commodities, which account for much of Latin America's exports, also fueled the currency declines. Crude oil has sunk 44 percent to $82.40 a barrel in New York from a record high of $147.27 reached on July 11. It rose 5.7 percent today.

`More Consistent, More Credible'

Global stock markets rallied today after the Federal Reserve said that the ECB, Bank of England and the Swiss central bank will auction unlimited dollar funds with maturities of seven days, 28 days and 84 days at a fixed interest rate. All of the previous dollar swap arrangements between the Fed and other central banks were capped.

European nations also agreed to take steps to bolster investor confidence as the global economy slides toward a recession. France, Germany, Spain, the Netherlands and Austria committed 1.3 trillion euros ($1.8 trillion) to guarantee interbank loans and take stakes in banks. Britain took majority stakes today in two of its biggest lenders.

``Europe has produced a more consistent, more credible financial plan,'' Coutino said. ``There is some accord among the major European nations that they realize they need to act jointly to stop deteriorating financial conditions. That should be positive for Latin American markets.''

Chile Peso Gains

Money-market rates fell in London today, a sign the central bank and government measures may help unfreeze credit markets. The London interbank offered rate, or Libor, for three-month dollar loans dropped 7 basis points to 4.75 percent today, tied for the largest drop since March 17, the British Bankers' Association said.

Chile's peso also gained today. It advanced 3.5 percent to 616.56 per dollar after plummeting 10.6 percent last week. Peru's new sol strengthened 0.4 percent to 3.0579 per dollar.

The yield on Mexico's benchmark 10 percent peso bonds due in 2024 dropped 21 basis points, or 0.21 percentage point, to 8.90 percent. The yield on Brazil's overnight interbank rate futures contract for January delivery fell 8 basis points to 13.88 percent.

Stocks surged throughout Latin America, following a global rally and adding to demand for the region's currencies. Brazil's Bovespa stock index soared 14.7 percent, the most in nine years. Mexico's Bolsa index rose 11 percent, the largest gain since 1998.

To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net

Last Updated: October 13, 2008 17:39 EDT