Mexican peso, stocks jump after Fed liquidity plan

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MEXICO CITY, March 11 (Reuters) - Mexico's peso currency firmed sharply on Tuesday and stocks jumped more than 3 percent after the U.S. Federal Reserve said it would inject cash-starved markets with up to $200 billion in funds.

The peso <MXN=> MEX01 gained 0.55 percent to 10.79 per dollar, while the benchmark IPC index .MXX gained 886 points to 29,093 points.

Before the market open, the Fed said it was expanding a securities lending program and would accept a broader base of securities as collateral, including many mortgage bonds whose value has declined as the U.S. housing bubble burst.

That encouraged more risk taking on the part of global investors, who piled into equities and currencies in emerging markets.

"This is stoking optimism that there are less risks in the financial sector," said Rafael Camarena, an economist at Santander in Mexico City.

The IPC fell to its lowest in a month on Monday on persistent worries over the impact of the U.S. housing and credit crisis on the Mexican economy.

In debt trading, the benchmark 10-year government peso bond <MX10YT=RR> edged down 0.139 of a point in price to bid 101.439, pushing its yield up 2 basis point to 7.54 percent.

However, the spread between the bond and its U.S. equivalent <US10YT=RR> fell 11 basis points to 394 basis points.