Forex Yellow Pages

MEXICO CITY, April 3 (Reuters) - Mexico’s peso closed at a two-year high on Thursday after poor U.S. job market data reinforced views the Federal Reserve will further cut interest rates.

The peso <MXN=> <MEX01> firmed 0.16 percent to 10.5595 per dollar at the central bank close, while the benchmark IPC stock index <.MXX> rose 0.70 percent at 31,689.61 points.

The peso is at its strongest level since March 2006 as investors favor the relatively high yields on local debt compared with U.S. Treasuries.

U.S. government data showed the number of U.S. workers applying for unemployment benefits last week soared to the highest level since September 2005.

“If you have weak data like this in the United States, it motivates expectations of a wider rate spread,” said David Franco, a fixed-income analyst at BBVA Bancomer in Mexico City.

That makes assets denominated in Mexican pesos more attractive to yield-hungry investors. The spread between Mexico’s key rate and the Fed’s target rate stands at 525 basis points, its widest since mid-2005.

In debt trading, the price of the benchmark 10-year government peso bond <MX10YT=RR> rose 0.207 points to bid at 101.844, pushing its yield down 3 basis points to 7.48 percent.

Mexican stocks initially fell on the jobs data, but recovered on a published report that the chief executive of Merrill Lynch & Co Inc <MER.N> said the bank is not in need of more capital. That boosted hopes the U.S. credit crisis is easing.

Traders said the rally also was fueled by the nation’s pension funds, which are accommodating their portfolios after new rules kicked in this week allowing managers to increase the amount of risky assets they hold.

“The funds took advantage of the correction in the morning to get into stocks,” said Manuel Lasa, head of trading at Interacciones brokerage.

Shares of America Movil <AMXL.MX>, Latin America’s biggest mobile phone provider, gained 2.18 percent to 35.09 pesos. Its New York-traded shares <AMX.N> rose 2.3 percent to $66.75.

Riding on gains for copper, miner Grupo Mexico <GMEXICOB.MX>, one of the world’s biggest producers of the red metal, added 3.01 percent to 73.88 pesos.

Financial group Inbursa <GFINBURO.MX> shared the optimism seen on other bank stocks, adding 2.5 percent to 31.51 pesos. (Reporting by Michael O’Boyle; editing by Leslie Adler)