Nov. 9 (Bloomberg) -- Mexico’s peso gained the most in a week as a rally in global stocks and commodity prices boosted investors’ appetite for higher-yielding, emerging-market assets.

The peso strengthened 1 percent to 13.2778 per U.S. dollar at 5 p.m. New York time, from 13.4098 on Nov. 6. Today’s advance pares the peso’s drop in the past three months to 2.4 percent, the only decline against the dollar among 16 major currencies tracked by Bloomberg.

The Standard & Poor’s 500 Index rose 2.2 percent after the Group of 20 nations, including the U.S., U.K. and Japan, said on Nov. 7 that it’s too early to withdraw spending intended to revive growth. Crude oil, Mexico’s biggest export, advanced 2.4 percent.

“Global equities are providing some relief,” said Greg Anderson, Latin America currency strategist at Societe Generale SA in New York.

Mexican lawmakers are discussing budget reforms necessary to rein in a growing fiscal deficit, with a decision on the spending side due to be approved on Nov. 15. The opposition- controlled Congress approved on Nov. 1 a permanent 1 percentage- point increase in the sales tax to 16 percent after rejecting President Felipe Calderon’s proposal for a 2 percent consumption tax that would have generated more than double the revenue.

‘Jitters’

Standard & Poor’s and Fitch Ratings say they may downgrade Mexico should the government fail to contain the deficit and offset a drop in oil production. Analysts from both rating agencies said last week they are waiting to see the spending side of the 2010 budget before making a decision on the country’s rating.

“There are a lot of jitters about the budget,” said Anderson. “The worst-case scenario is being priced in. If the resolution is reasonably positive, the peso should start catching up to currencies in the region” such as the Brazilian real, the Chilean peso and the Colombian peso.

The real has jumped 7.2 percent in the last three months while the Chilean peso has climbed 6 percent and the Colombian currency 2.2 percent.

Yields on Mexico’s 10 percent bond due December 2024 fell one basis point, or 0.01 percentage point, to 8.25 percent, according to Banco Santander SA. The price rose 0.08 centavo to 115.05 centavos per peso.

‘Unlikely to Materialize’

Mexico’s annual inflation slowed to 4.5 percent in October from a year earlier, the central bank said in a report today. Economists expected an annual rate of 4.64 percent, according to the median estimate of 14 estimates compiled by Bloomberg.

Banco de Mexico may leave its overnight lending rate unchanged at 4.5 percent through 2010, Neil Shearing, an emerging-markets analyst for Capital Economics Ltd. in London, wrote in a report today.

“The aggressive hikes in rates that are currently priced into the market are unlikely to materialize,” Shearing wrote.

The weakening peso likely won’t push inflation to quicken next year, according to Shearing. He forecasts the currency will weaken to 14 by the end of 2010.

“Against the backdrop of increased spare capacity, a dip in the currency of this magnitude is unlikely to spark a rapid acceleration in inflation -- instead it would probably act more as a brake on disinflation,” Shearing wrote.

To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net

Last Updated: November 9, 2009 17:31 EST