Mexico peso firms on global recovery sentiment

MEXICO CITY, Aug 18 - Mexico's peso strengthened on Tuesday on reports that showed improved German investor sentiment and solid earnings at U.S. retailers, boosted confidence that the global economy is rebounding.

Rebounding from sharp losses on Monday, the peso MXN=><MEX01 gained 0.7 percent to 12.94 per dollar while the IPC stock index .MXX> rose 0.9 percent to 27,544.32.

The ZEW economic research institute's economic sentiment index for Germany, the world's leading exporter, rose in July to its highest level since April 2006.

In a sign of improvement in the U.S. economy, major retailers Home Depot Inc and Target Corp posted better-than-expected profits for the second quarter. Home Depot also raised its full-year forecast.

If U.S. consumers are starting to spend more freely, that could bode well for the outlook of Mexico's battered export sector, which is driving a deep local recession.

"Home Depot's outlook was positive which helped keep the market up," said Jaime Ascencio, an analyst at Actinver brokerage in Queretaro.

A sharp rise in Cemex helped drive gains in the IPC index. Cemex's shares jumped 5.49 percent to 14.99 pesos after the company said on Monday that it had until next June to raise money to refinance its debt. ID:nN18523005

Miner Grupo Mexico gained 6.95 percent to 20.17 pesos after it said it would raise its offer for bankrupt U.S. copper miner Asarco LLC to $2.2029 billion in cash. nN17385167

Mexican stocks fell steeply on Monday amid a global sell-off sparked by doubts that the valuations of riskier assets, like stocks and emerging market currencies, have outpaced the prospects for economic growth.

The IPC has shed 2.7 percent from an over one year high that it touched last week.

Tempering the improved sentiment on Tuesday, data showed U.S. housing starts unexpectedly dropped in July.

Mexico's peso has lagged gains of other emerging markets for most of the summer, but the currency in recent weeks has outperformed its peers on bets it will benefit the most from the U.S. recovery.

But poor data on U.S. consumer sentiment and retail sales last week revived worries of a sluggish recovery in consumer demand in the United States.

Some analysts think further gains by the peso will be limited in the coming sessions if global stock markets slide further, undermining appetite for riskier emerging market assets.

"There is fear that the gains in stock markets are based on false assumptions about growth," said economist Pedro Tuesta at 4Cast consultancy in Washington D.C.

The yield on the government's benchmark 10-year peso bond MX10YT=RR bid up 1 basis point at 8.12 percent.