Mexican stocks pare weekly gain; rate held at 4.5%

LOS ANGELES (MarketWatch) � Mexican stocks fell Friday, paring the benchmark�s weekly gain as the central bank left unchanged the key interest rate as it keeps watch on local and global economic slowdown risks.

Mexico�s IPC MX:IPC �fell 0.8% to 37,384.21, with just a handful of 35-listed shares able to advance. Broadcaster TV Azteca MX:AZTECACPO �topped the session�s few advancers by rising 2.1%. Wal-Mart de Mexico WMMVY �gained 0.8%, and engineering and construction firm Empresas ICA ICA �rose 1.8%.

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Finance and consumer-discretionary issues weakened, with shares of banking firm Banorte MX:GFNORTEO �off 1.1%, and as baked-goods maker Grupo Bimbo MX:BIMBOA �paced decliners by losing 2.8%.

The IPC logged a weekly rise of 2.3%, the first weekly advance in four weeks.

Mexico�s currency USDMXN �regained ground against the U.S. dollar, trading at 13.175 pesos compared with 13.233 pesos on Thursday. The peso had been under pressure earlier Friday, declining alongside the euro against the greenback as investors awaited word about the Greek government�s reported deal with private creditors to write down debt. Read more on currencies.

Mexico�s central bank on Friday met widely held expectations that it would keep the key interest rate unchanged at 4.5%. The rate has sat at that level since July 2009. The decision comes as policy makers noted a slower pace of domestic economic expansion in the last quarter of 2011, while inflation risks largely remain balanced.

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The central bank said in an accompanying statement that it expects recent acceleration in inflation will be short-lived. Heading into the first policy meeting of 2012, hopes for rate cuts had dimmed in part after headline inflation climbed. The bank said some of the pressure stemmed from previous currency depreciation. The peso fell last year by 11.5%.

Mexico�s rate committee �is sort of at a crossroads,� as it faced a pop-up in inflation indicators at the end of last year at the same time that uncertainty lingers about Europe�s efforts to deal with its debt crisis, and the impact from that on the global economy, said Enrique Alvarez, head of Latin American research at IDEAglobal in New York.

�They are waiting to see if we see more overall contagion flowing from Europe before they actually cut rates. I think that�s still their preferred course of action,� he said in a telephone interview. �They are keeping peripheral vision on what is occurring on the inflation side. I think the external growth front continues to be their primary concern.�

What may have �improved their posture as far as taking rates lower,� is, in part, brighter economic data from the U.S., Mexico�s largest trading partner, which �to a certain degree should continue to favor a somewhat bullish peso,� Alvarez added. The currency is up roughly 5% so far this year.

At Moody�s Analytics, director of Latin American research Alfredo Couti�o sees the potential for the key rate to be hiked during the second half the year. If global volatility deteriorates and affects domestic financial variables, �the central bank will be forced to increase the policy rate to restore market�s stability.�

Couti�o said in a note Friday that given the prospects for an increase in inflation during the first half of this year, �in an economy positively influenced by the expansionary effects of the political business cycle,� policy makers are likely to hold the rate steady for the first half of 2012.

Mexico will hold a general election in July, with voters set to choose a successor to current President Felipe Calder�n.

Elsewhere, Brazil�s Ibovespa BR:BVSP �ended at a six-month high by rising 0.6% to 62,312.13. Friday�s session also marked the index�s fifth consecutive gain. It closed the week up by 5.4%.

Chile�s IPSA CL:IPSA �on Friday turned 0.2% higher to 4,278.17, and rose 1.7% this week. Argentina�s Merval AR:MERV �ended the daily session down 0.5% at 2,867.59, but climbed 4.1% on a weekly basis.