April 30 (Bloomberg) -- Mexico’s peso fell for the first time in three days after Finance Minister Agustin Carstens said the economy will drop for the next two or three months, reviving concerns the swine-flu outbreak will deepen a slump.

The peso declined 0.9 percent to 13.8407 per U.S. dollar at 5 p.m. New York time, from 13.7197 yesterday. The drop was the biggest among the six most-traded Latin American currencies.

Carstens “acknowledged that the flu will have a negative effect,” said Luis Flores, an economist at IXE Grupo Financiero SA in Mexico City. “The peso isn’t taking this well.”

Carstens spoke today in an interview on Televisa after officials yesterday said the government will suspend all non- essential services from May 1 to May 5 and urged businesses to close to reduce the risk of spreading the flu, which is suspected of causing 176 deaths. At a press conference yesterday, he said the outbreak in Mexico may cut gross domestic product by an additional 0.3 percent to 0.5 percent this year.

President Felipe Calderon, in a televised address last night, also urged businesses to close from May 1 to May 5 in order to minimize the infection. Banks, pharmacies, airports, bus companies and supermarkets will remain open, he said.

Financial markets are closed tomorrow in Mexico because of the Labor Day holiday.

Mexico’s peso has weakened 3.6 percent this week, paring its advance in April to 2.4 percent.

Peso Bonds

The outbreak of the swine flu is hurting an economy already faltering from decreased demand for Mexican exports from the U.S., its biggest trading partner, slower remittance flows and declining tourism revenue. Banco de Mexico yesterday forecast the economy will shrink as much as 4.8 percent, compared with a previous estimate of a contraction of as much as 1.8 percent.

Mexican peso-denominated bonds fell, pushing yields on the benchmark security up from a one-week low. Yields on Mexico’s 10 percent bond due December 2024, the country’s most-actively traded security, rose six basis points, or 0.06 percentage point, to 8.01 percent. The bond’s price fell 0.55 centavo to 117.66 centavos per peso, according to Banco Santander SA.

Concern the flu will deepen the slump is boosting speculation the central bank will cut its key lending rate by as much as 0.75 percentage point next month, Flores said.

Banco de Mexico may slash its key rate to 5.25 percent from 6 percent at its next policy meeting on May 15 and reduce its target to 4.75 percent in June, said Flores. The central bank cut its key lending rate four times this year from 8.25 percent.

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

Last Updated: April 30, 2009 18:16 EDT