Mexico stocks fall as oil rise seen weighing on US

(Recasts; adds details, closing prices)

MEXICO CITY, July 2 (Reuters) - Mexican stocks fell sharply on Wednesday on fears that record oil prices are further weakening the U.S. economy and worries about the impact of Mexican inflation.

The benchmark IPC stock index .MXX fell for the second day in a row, closing 1.85 percent down at 28,860.83 points, while the peso <MXN=> MEX01 firmed 0.12 percent at the central bank's final 1:30 p.m. (1830 GMT) reference to 10.368 per dollar.

Oil prices CLc1 on Wednesday jumped more than $3 to above $144 per barrel, stoking fears that higher fuel costs would cut into U.S. consumer spending and further drag down the already weak economy in the United States, Mexico's main trading partner.

"This is increasing nervousness about what could be the effect of a prolonged slowdown in the United States on the Mexican economy," said Fabiola Molina, a strategist at Scotia Capital in Mexico City.

Bad news for the U.S. economy usually bodes poorly for Mexico, which sends around 80 percent of its exports to its northern neighbor.

Echoing market sentiment, U.S. Treasury Secretary Henry Paulson said high oil prices, further home price declines and capital markets turmoil will prolong the American economy's slowdown.

Molina said equities also suffered as the market worried that rising inflation pressures would cut into company profits and likely push the central bank to soon tighten borrowing costs.

Traders said that sentiment helped the peso, which has gained more than 5 percent this year as the spread between U.S. and Mexican benchmark interest rates has widened, making peso-denominated assets more attractive to investors who borrow funds in low-yielding currencies.