Mexican Bolsa Jumps on Brighter Economic Outlook

MEXICO CITY —  Mexican stocks soared to their highest levels in six months Wednesday on growing hopes the economy will recover quickly from the crisis sparked by last year’s peso devaluation, traders said.

The Bolsa stock index of 37 leading shares ended up 121.84 points, or 5.6%, at 2,306.30, the fourth-biggest gain of the year and the highest close since Jan. 2, only two weeks after the devastating peso fall.

“The day was hectic and the market closed strong,” one trader said. Volume was heavy at 158.6 million shares. On the broad market, gainers beat decliners by a 78-10 margin.

A less negative outlook on Mexico’s economy by foreign and local investors alike sparked the buying spree, analysts said.

“There are a lot of factors pointing to improved economic conditions,” said Ricardo Peon, director of analysis at Baring Securities in Mexico City.

Peon said a stable peso, lower inflation and interest rates, a first-half trade surplus and few signs of trouble in the banking system have created a feeling that Mexico’s economy will bounce back from its devaluation woes.

Share prices were also helped by expectations of a cut in U.S. interest rates today, the last of a two-day meeting by the Federal Reserve Board to set interest rate policy.

Traders also said many of Wednesday’s gains originated in New York, where mutual funds moved to buy shares to cover short positions on Mexican investments traded there.

In a short sale, a trader borrows stock and sells it, hoping the price will decline before the stock must be purchased in the open market to complete the transaction.

A trader buys back shares either to take profits from a drop in the value of the borrowed shares or to stem losses when those shares rise.

In addition, a rise Wednesday in the Dow Jones industrial average to yet another record spilled over to Mexican stocks.

Some traders also reported movement from Chilean stocks into Mexican issues after Chile’s central bank increased the amount of cash that foreign investors must leave in its hands to 30% of their total investment from 25% on Monday.

The rise also seemed to be part of a general growth in confidence after months of gloom about the Mexican economy.

June ended with an eight-day rally.

On Tuesday, President Ernesto Zedillo said the worst of Mexico’s crisis had passed.