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Mexico Peso Drops as Downgrades Overshadow Auto Output Increase

Mexico’s peso weakened as investor concern the European debt crisis will deepen overshadowed an increase in auto production in the Latin American country.

The peso fell 0.5 percent to 12.7605 per U.S. dollar at the close in Mexico City, from 12.6982 yesterday. It has gained 9.2 percent this year, the most among major currencies tracked by Bloomberg.

Moody’s Investors Service yesterday cut the debt ratings of six European countries including Italy, Spain and Portugal and said it may strip France and the U.K. of their top Aaa ratings, citing Europe’s debt crisis. Mexican production of cars and light trucks reached 202,701 units in January, a 1.2 percent increase from a year earlier, the nation’s Automobile Industry Association, known as AMIA, reported today.

While an expansion in auto production has already been priced into the peso, “markets are again nervous by the downgrade of Italy, Spain and Portugal and the negative outlook given to England, France and Austria,” Ramon Cordova, a currency trader at Banco Base SA in Monterrey, Mexico, said by phone.

Sales at U.S. retailers rose less than forecast in January, reflecting an unexpected drop in purchases of automobiles. The 0.4 percent gain reported by the Commerce Department today in Washington was half the 0.8 percent median forecast of economists surveyed by Bloomberg. Sales excluding cars climbed 0.7 percent, more than projected and the biggest gain since March.

Mexico sends about 80 percent of its exports to the U.S.

The yield on peso-denominated debt due in 2024 fell two basis points, or 0.02 percentage point, to 6.43 percent, according to data compiled by Bloomberg. The price of the securities rose 0.15 centavo to 131.07 centavos per peso.

Mexico sold all 6 billion pesos of 28-day Cetes and 7 billion pesos of the 91-day securities it offered today, the central bank said on its website. It also sold all 8.5 billion pesos in 175-day bills it auctioned today, the bank said.

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