US car industry hit Mexican stocks

Mexican stocks dropped on Wednesday on worries about the prospects of a U.S. auto industry bailout and after the Federal Reserve slash its growth forecasts for the United States, Mexico's top trading partner.

The benchmark IPC stock index plunged for the third session in a row, closing down 2.41 percent to 18,578.38 points.

The peso weakened 0.25 percent at the central bank's final reference to 13.20 per U.S. dollar and dropped further to around 13.50 in late afternoon trade.

Executives from General Motors, Ford, and Chrysler beg with U.S. lawmakers on Wednesday for a multibillion-dollar bailout after warning their industry was reeling on the brink of disaster.

"The possibility of a bankruptcy in General Motors has been a factor pressuring markets in the last sessions," wrote Jaime Ascencio, an analyst at Actinver brokerage in Mexico City, in a note to clients.

Slowing U.S. demand for auto parts and vehicle exports combined with waning local sales are controlling production at Mexican car factories, and analysts say a bankruptcy at GM would also affect parts suppliers, like Delphi Corp.

"The peso will remain unstable with a tendency to weaken as long as they don't clear up the situation at GM," wrote Salvador Moreno, an economist at ING in Mexico City.

US economy might not grow

Adding up to concerns, Federal Reserve officials said the U.S. economy may not grow at all in 2008 and could get smaller by 0.2 percent in 2009, minutes of their October meeting released on Wednesday show.

Expanding signs of a deep recession in the United States stood poorly for Mexico, which sends around 80 percent of its exports to its northern neighbor.

Mexican industrial output decreased for the fifth straight month in September, an official report showed on Wednesday.

Mexico's peso has lost a quarter of its value against the U.S. dollar since early August as investors abandoned emerging market assets in the middle of the worst financial crisis in more than 80 years. The IPC is down 37 percent for the year.

In debt trading, the yield on the government's 10-year peso bond  fell 15 basis points to 9.69 percent.

Mexico's central bank on Wednesday auctioned 10-year interest rate swaps as part of efforts to steady the local debt market, which has been hit by the global financial crisis.

In equites trading, shares in America Movil, Latin America's biggest cell phone operator, lost 3.81 percent to 19.45 pesos while its shares in New York fell 5.55 percent to $29.11.
Miner Grupo Mexico lose 8.88 percent to 7.49 pesos.