Mexico peso slips on US economy worries, stocks up

(Recasts, adds detail)

MEXICO CITY, March 26 (Reuters) - Mexico's peso weakened on Wednesday after unexpectedly weak U.S. durable goods orders and lower U.S. home sales prices added to signs that the economy of Mexico's chief trading partner is stalling.

The peso currency <MXN=> MEX01 weakened 0.10 percent to 10.6965 per dollar, although the benchmark IPC index .MXX reversed early losses to close up 0.25 percent at 30,057.26 points in a session of light trading.

New orders for long-lasting U.S.-made manufactured goods during February fell 1.7 percent. Another report showed sales of new U.S. single-family homes fell to their slowest pace in 13 years. The gloomy data renewed fears that the United States, destination for 80 percent of Mexican exports, is suffering an economic slowdown.

Long-term bond prices rose for the second day in a row, erasing most of the declines seen on Monday after news that inflation in early March was higher than expected.

Despite the poor inflation data, Manuel Galvan, a debt strategist at Metanalisis consultancy, said bonds were benefiting from expectations among some investors that the Mexican central bank could soon cut interest rates in response to the deceleration of the U.S. economy. But he cautioned rate cuts were unlikely to happen in the short term.

"We think that's pretty risky, given the deteriorating inflation outlook," Galvan said.

The price of the benchmark 10-year government peso bond <MX10YT=RR> rose 0.068 of a point to bid 101.64, pushing its yield down 1 basis points to 7.51 percent.

Both the peso and local bonds have been propped up by a 525 basic point spread between the U.S. Federal Reserve's target interest rate and Mexico's key overnight rate. The spread makes peso-denominated assets more attractive to yield-hungry investors.