Almost "failed state" Mexico peso, stocks slammed by U.S. bank woes

[Joanne98]

MEXICO CITY, Jan 15 (Reuters) - Mexico's peso weakened sharply on Thursday and stocks sank for a ninth straight session as investors fled riskier emerging market assets due to renewed worries of mounting losses in the U.S. financial sector.

The peso <MXN=>MEX01 slipped 1.01 percent to 14.265 per dollar, losing ground for the third day in a row, ahead of a monetary policy decision on Friday where the central bank could move to lower borrowing costs to boost the flagging economy.

The IPC stock index .MXX lost 2.62 percent to 19,836, its lowest since early December.

Shares of U.S. banks sank on Thursday as investors feared a need for more government aid in the financial sector pointed to mounting credit losses as the year-long recession deepens.

"The ghost is back," said a currency trader in Monterrey, referring to worries about financial firms that panicked global markets late last year.

Mexico's peso lost 21 percent against the dollar last year as the global credit crisis pushed investors to dump emerging market assets. The currency has lost another 3 percent since the beginning of 2009.

Mexico's central bank will issue its first monetary policy decision of the year on Friday.

http://www.reuters.com/article/usDollarRpt/idUSN1552152120090115

[bhikkhu]

1. As a "petro-state", things are not going well for Mexico

They have their share of banking and credit problems, but a far larger one is the dependence of Mexico upon oil revenues for 70% of government revenues. First, their biggest field, Cantarell, has gone into terminal decline which they've been unable to offset by new production elsewhere. Second, the price of the oil they are able to produce has fallen dramatically, cutting deeply into government funds.

http://www.theoildrum.com/node/2226