Mexico bonds sink on fuel, cement hikes; stocks up

(Recasts throughout, adds closing prices)

MEXICO CITY, July 7 (Reuters) - Mexican bonds fell on Monday as gasoline and cement price hikes fanned inflation fears, while stocks gained in choppy trade, boosted by a drop in oil prices but held back by fresh U.S. credit jitters.

The government's benchmark 10-year peso bond <MX10YT=RR> fell 0.704 of a point in price to bid 90.371, pushing its yield up 12 basis points to 9.29 percent, its highest in two years.

The benchmark IPC stock index .MXX closed 0.16 percent higher at 28,383.53 points in a day of volatile trading. The peso <MXN=> MEX01 weakened 0.15 percent at the central bank's final 1:30 p.m. (1830 GMT) reference to 10.349 per dollar. The currency later firmed back to 10.331 per dollar.

Analysts and traders said bond prices fell after the government's latest monthly gasoline price increase suggested it was quickening the pace of price hikes, raising fears that government-controlled energy prices could add to inflation pressures.

The government raised prices for standard grade gasoline by 6 centavos per liter in July, compared with a 2-centavo-per-month increase earlier in the year.

Also weighing on debt trading was a 5 percent increase in cement prices by the world's No. 3 producer, Cemex (CMXCPO.MX: Quote, Profile, Research) (CX.N: Quote, Profile, Research) , which took effect on Monday.

"Basically, the bottom line is more inflation and the possibility that the central bank will keep raising (interest) rates," said Alejandro Martinez, head of debt and currency strategy at HSBC in Mexico City.

Mexico's central bank will report inflation for June on Wednesday after prices rose in May at their fastest annual rate in three years.