Mexico's Currency Rises on Bets U.S. Bank Bailout Plan to Pass

By Valerie Rota

Sept. 30 (Bloomberg) -- Mexico's peso strengthened for the first time in three days on speculation the U.S. Senate will salvage a $700 billion bank bailout package after the House of Representatives rejected it yesterday.

Demand for pesos rose on optimism approval of the plan to rid financial institution of bad loans will bolster economic growth in the U.S., the biggest buyer of Mexican exports. The defeat of the plan in the House yesterday sent the peso tumbling 2.3 percent, its biggest drop in more than five years.

``Approval of the package is essential for keeping financial markets from entering into a profound crisis,'' said Jaime Ascencio, a fixed-income strategist at Mexico City-based Actinver SA, the country's biggest independent money manager. ``There's more tranquility in the market today.''

The peso strengthened 0.85 percent to 10.9378 per U.S. dollar at 5 p.m. New York time, from 11.0320 yesterday, when it touched its weakest level in a year.

Judd Gregg, the Senate Banking Committee's ranking Republican, and Barack Obama, the Democratic presidential candidate, said legislators would eventually push through legislation after the House of Representatives voted down the plan.

The rally today cuts the peso's decline this month to 6.3 percent. That's still the biggest monthly drop in a decade. Almost $600 billion of credit losses and writedowns at global financial institutions have sapped demand for higher-yielding assets in developing nations.

`No Doubt'

The lending crunch in the U.S. will ``no doubt'' hurt Mexican growth as the tourism industry slows, Finance Minister Agustin Carstens said at a news conference in Washington yesterday. A slump in the U.S. housing industry will curb transfers home to Mexico from migrant workers, Carstens said. Mexico lowered its 2008 growth forecast this month to 2.4 percent from 2.8 percent.

Yields on Mexico's 10 percent bond due in December 2024, the country's most-traded security in pesos, fell 6 basis points, or 0.06 percentage point, to 8.46 percent. The price rose 0.61 centavo to 113.53 centavos per peso, according to Banco Santander SA.

To contact the reporter on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net.