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Mexico Peso Drops Most in Almost 2 Weeks on Europe Debt Concerns

March 19 (Bloomberg) -- Mexico’s peso declined amid increasing investor concern that a bailout for Cyprus will falter, fanning Europe’s debt crisis and damping global growth.

The currency depreciated 0.2 percent to 12.4366 per U.S. dollar at 3 p.m. in Mexico City, the biggest fall since March 6. The drop pared its gain against the dollar this year to 3.3 percent, according to data compiled by Bloomberg.

The peso slumped with most major emerging market tenders as lawmakers in the Mediterranean island nation rejected a levy on bank deposits in a standoff that risks renewed tumult in the euro area. Europe’s debt crisis is reducing investor demand for emerging-market assets, said Ramon Cordova, a currency trader at Banco Base SA in San Pedro Garza Garcia, Mexico.

“The peso represents something for emerging markets,” Cordova said in an e-mailed response to questions. “It’s the only currency that’s freely convertible with acceptable volume” in Latin America.

Later the European Central Bank reaffirmed its commitment to provide liquidity “as needed within the existing rules,” damping some of the concern about Cyprus.

Mexico isn’t planning measures to curb the peso’s gains this year, Deputy Finance Minister Fernando Aportela said in an interview in Panama City on March 17.

The currency has gained 2.6 percent since before policy makers cut benchmark borrowing costs by 0.5 percentage point on March 8 to a record-low 4 percent.

Yields on Mexico’s peso bonds due in 2024 dropped two basis points, or 0.02 percentage point, to 4.97 percent, according to data compiled by Bloomberg. The price rose 0.24 centavo to 144.76 centavos per peso.

Mexico sold 5 billion pesos ($402 million) in one-month bills known as Cetes today at auction, according to the central bank. The country also auctioned off 7 billion pesos of 91-day securities and 9 billion pesos in 182-day notes.

To contact the reporter on this story: Ben Bain in Mexico City at bbain2@bloomberg.net

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

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