Mexico bonds gain on reduced inflation worries

(Recasts; adds details and background)

MEXICO CITY, May 15 (Reuters) - Mexican bond prices rose on Thursday, partially recovering from recent losses as investors worried less about the impact on inflation from a forecast increase in prices of the food staple tortilla, while stocks rose.

The government's benchmark 10-year peso bond <MX10YT=RR> rose 0.198 of a point in price to bid 97.861, pushing its yield down 3 basis points to 8.07 percent.

The benchmark IPC stock index .MXX gained 0.34 percent to 31,435 points, while the peso <MXN=> MEX01 firmed 0.14 percent to 10.472 per dollar.

Bond investors fear accelerating inflation could push the central bank to raise interest rates this year.

Worries were further stoked after producers of corn flour tortillas on Wednesday said they will soon raise prices for the Mexican staple. Some media reports said tortilla prices could rise by as much as 40 percent, citing a small tortilla-maker group.

The news spooked bond investors, who dumped long-term bonds on Wednesday, pushing the yield on the 10-year bond up 7 basis points. But yields edged down on Thursday as investors questioned how big the increase could be and when it could hit.

"It's a question of if it really happens or not," one bond trader said.

But even a modest increase in tortilla prices could help push inflation beyond the central bank's guidance of a maximum annual inflation rate of 5 percent during the first and second quarters, analysts said.