April 9 (Bloomberg) -- Colombia's peso rose to its highest since July 1999, exceeding 1,800 per dollar, on speculation investment will keep pouring into the country amid an eight-year- old economic expansion.

Colombia's economy expanded 7.5 percent in 2007, the fastest pace since 1978. Foreign direct investment rose 40 percent to $9.03 billion last year. In the year through March 19, it has increased 25 percent to $2.16 billion, according to the central bank.

``Strong investment inflows are maintaining expectations the peso will continue its appreciating trend,'' said Alvaro Camaro, chief analyst at Stanford Financial Group's unit in Bogota.

Colombia's peso advanced 0.5 percent to 1,800.4 per dollar at 5:35 p.m. New York time, from 1,808.5 yesterday, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX. It touched 1,794.5, its strongest level since July 7, 1999.

The nation's borrowing costs declined at a local peso debt auction today as speculation inflation will ease boosted demand for fixed-rate securities. The yield on Colombia's bonds due October 2015 dropped to 11.27 percent from 11.64 percent at the last auction on March 26, the Finance Ministry said. The government sold fixed-rate securities due October 2018 and May 2011 for the first time.

Inflation Expectations

Economists this month cut their median forecast for 2008 inflation to 5.15 percent from 5.2 percent the prior month, according to a central bank survey released this week. Annual inflation slowed to 5.9 percent in March from 6.4 percent in February. That rate exceeds the central bank's 3.5 percent to 4.5 percent annual target range.

``Expectations inflation will slow is leading to increased appetite for the bonds,'' said Camaro. Slowing inflation preserves the value of bonds' fixed payments.

The yield on Colombia's benchmark 11 percent bonds due July 2020 rose 1 basis point to 11.22 percent, according to Colombia's stock exchange. A basis point equals 0.01 percentage point. The price fell 0.064 centavo to 98.447 centavos per peso.

Mexico's peso fell 0.1 percent to 10.5697 per dollar. The yield on Mexico's benchmark bond maturing in December 2024 fell 3 basis points to 7.58 percent, according to Banco Santander SA.

Energy Bill

Mexico yesterday introduced a bill to Congress that seeks to offset a four-year decline in oil output and reserves by giving Petroleos Mexicanos, the state-owned oil company, more freedom to hire foreign and private companies to explore, produce, refine and transport oil.

``The bill has been taken well by the market, though it's still too early to say if it will help boost investment in the oil industry,'' said Juan Trevino, chief economist for HSBC Holdings Plc in Mexico City.

Chile's peso advanced 1 percent to 432.80 per dollar, from 437.04 yesterday. It has strengthened 14.8 percent this year, the biggest gain among the six most-traded currencies in Latin America. The yield on Chile's 6 percent bonds due in March 2017 was little changed at 6.52 percent, according to HSBC Chile.

Peru's sol dropped the most since Jan. 21, weakening 0.6 percent to 2.7115 per dollar, from 2.6955 yesterday. The central bank bought $6.9 billion during the first three months of 2008 to stem the sol's appreciation. It purchased $31 million today. The currency has jumped 10.7 percent this year.

Argentina, Venezuela

The yield on Peru's 8.6 percent sol-denominated bonds due in August 2017 rose 6 basis points to 6.49 percent, according to Citigroup Peru.

Argentina's peso was little changed at 3.1585 per dollar. The yield on the government's 5.83 percent inflation-linked peso bonds due in December 2033 rose 4 basis points to 9.13 percent, according to Citigroup Inc.'s unit in Argentina.

Venezuela's bolivar weakened 1.3 percent to 3.85 per dollar in the unregulated market, from 3.8 yesterday, traders said. The government pegs the currency at an official exchange rate of 2.15 per dollar under restrictions imposed in 2003. Venezuelans turn to the parallel market when they can't get approval from the government's Foreign Exchange Administration Commission to buy dollars at the official rate.

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

Last Updated: April 9, 2008 17:43 EDT