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Mexico Peso Touches One-Month Low on Surprise Output Drop

Feb. 11 (Bloomberg) -- Mexico’s peso fell to its weakest level in two weeks after a report showed the Latin American nation’s industrial production unexpectedly declined for the first time in more than three years.

The peso slipped 0.1 percent to 12.7337 per U.S. dollar at 4 p.m. in Mexico City, its weakest closing level since Jan. 28. The currency has advanced 0.9 percent this year, after rallying 8.4 percent in 2012, the biggest gain among the dollar’s 16 most-traded counterparts.

Industrial production fell 1.1 percent in December from a year earlier, the first decline since November 2009, the national national statistics institute reported today on its website. The median estimate of 12 economists surveyed by Bloomberg was for an expansion of 2 percent.

The peso’s slump “accelerated after the weaker-than-anticipated” industrial production, Eduardo Suarez, a Latin America foreign-exchange strategist at Bank of Nova Scotia in Toronto, said in an e-mailed response to questions.

The peso has depreciated 1.2 percent since the central bank on Jan. 18 indicated it could lower borrowing costs for the first time in more than three years. In a statement accompanying their decision to leave the benchmark rate unchanged for a 32nd straight meeting, policy makers said a rate reduction would respond to “a situation of less economic growth and lower inflation.”

‘Bigger Incentive’

Yields on Mexico’s bonds fell as the drop in industrial production fueled speculation that policy makers will reduce rates as inflation remains under control, according to Gerardo Welsh, a bond trader at Banco Base SA. While the pace of increases in consumer spending last month was an above forecast 3.25 percent, the rate has declined for four straight months since peaking in September at 4.77 percent.

“If the inflation is controlled and the economy shows a deceleration this could give a bigger incentive to Mexico to cut rates,” Welsh said in a telephone interview from San Pedro Garza Garcia, Mexico.

Yields on peso bonds due in 2014 fell to record lows today after the output data. The yield on the debt fell one basis point, or 0.01 percentage point, to 4.35 percent, according to data compiled by Bloomberg.

To contact the reporter on this story: Jonathan J. Levin in Mexico City at jlevin20@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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