Mexican bonds fall on inflation fears; stocks down

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MEXICO CITY, July 7 (Reuters) - Mexican bonds fell on Monday as gasoline and cement price hikes fanned inflation fears, while stocks erased early gains to turn lower amid fresh jitters in the U.S. credit market.

The government's benchmark 10-year peso bond <MX10YT=RR> fell 0.646 of a point in price to bid 90.429, pushing its yield up 11 basis points to 9.28 percent, trading near two-year highs.

The benchmark IPC stock index .MXX fell 0.53 percent to 28,188 points, after rising earlier more than 1 percent, while the peso <MXN=> MEX01 weakened 0.06 percent to 10.34 per dollar.

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 government-controlled energy prices could add to inflation pressures.

"There is a bit of noise due to the gasoline price increase," one bond trader said.

The government raised prices for standard grade gasoline by 6 centavos per liter in July, compared to a 2 centavo per month increase that had been seen earlier in the year.

Also keeping inflation on the top of investors' minds was a 5 percent increase in local cement prices by the world's No. 3 producer Cemex that took effect on Monday.

Mexico's central bank on Wednesday will report inflation for June, which is expected to show strong pressures on consumer prices that some investors expect might push policy-makers to raise interest rates further.