Mexico peso, stocks dip as investors reassess rally

(Recasts, adds stocks, analyst comment and closing prices)

MEXICO CITY, March 27 - Mexico's peso weakened sharply on Friday and stocks dropped amid bets that gloomy economic data expected next week could undermine a surge seen this month.

The peso lost 0.97 percent to 14.311 per dollar, breaking a two-day winning streak.

Even with Friday's losses, the Mexican currency has gained more than 8 percent this month since rebounding from a 16-year low.

Global stocks sold-off on signs of economic weakness in Europe and expectations that data next week, such as U.S. non-farm payrolls, would undermine expectations of an incipient recovery.

"The rally went for too long and people are taking money off the table. Data next week is going to show everything still looks bad," said Bertrand Delgado, an economist at consultancy RGE Monitor in New York.

The U.S. dollar gained broadly as the euro sank after factory orders in Europe plunged 34 percent in January, year-on-year, and Germany's finance minister warned that fiscal irresponsibility could further weaken the euro.

Mexican assets have been hammered since last October, hurt by worries that the U.S. downturn is driving Mexico into a deep recession.

But surprisingly positive U.S. economic data, combined with details on how Washington plans to clean toxic assets off bank's balance sheets, helped fuel the rally this month.

The benchmark IPC stock index closed down 1.11 percent at 20,315.17.

Before Friday's losses, stocks had gained around 21 percent this month.

"The bargains are over, and the market is at a fair value. Hopefully we can hang on and generate some confidence," said Juan Goicoechea, head of stock trading at Multivalores brokerage in Mexico City.

Shares in America Movil, Latin America's biggest cell phone operator, fell 2.87 percent to 19.94 pesos.

Miner Grupo Mexico shed 4.25 percent to 11.05 pesos.

Top broadcaster Televisa, the world's biggest producer of Spanish language TV content, lost 2.57 percent to 39.82 pesos.

In debt trading, the government's benchmark 10-year peso bond fell 0.559 of a point in price, pushing its yield up 8 basis points to 7.87 percent.