Mexico stocks fall on credit jitters; peso firms

MEXICO CITY, July 8 (Reuters) - Mexican stocks fell on Tuesday on fresh jitters about the U.S. credit market while the peso firmed as investors increased bets that strong inflation would push the country's central bank to raise interest rates.

The benchmark IPC stock index .MXX fell 0.62 percent to 28,207 after briefly dropping more than 1 percent, while the peso <MXN=> MEX01 firmed 0.1 percent to 10.3385 per dollar.

Traders said stocks were hurt by fears that more banks in the United States will have to write down major losses during the second quarter.

"The people are really nervous," said one trader in Mexico City.

Bad economic news for the United States is usually also bad for Mexico, which sends around 80 percent of its exports to its northern neighbor.

Traders said worries persisted despite comments from Federal Reserve Chairman Ben Bernanke who said the U.S. central bank may extend emergency lending for Wall Street investment banks.

In the currency market, traders said the peso gained on speculation that a Mexican central bank report on consumer price data for June, due on Wednesday, will show accelerating inflation.

"The market is expecting June inflation will come out high and that the central bank will raise rates again. The peso will get a boost on the interest rate spread," said one peso trader in Mexico City.

In debt trading, the government's benchmark 10-year peso bond <MX10YT=RR> fell 0.057 of a point in price to bid 90.314, pushing its yield up 1 basis point to a two-year high at 9.30 percent.