Mexico rate hike lifts peso to 5-year high

(Recasts; adds closing peso price, stock prices)

MEXICO CITY, July 18 (Reuters) - Mexico's peso firmed to a five-year high on Friday and bonds fell after the country's central bank raised interest rates for the second straight month and some investors bet on further rate hikes.

The peso <MXN=> MEX01 strengthened 0.37 percent at the central bank's final 1:30 p.m. local time (1830 GMT) reference to 10.1815 per dollar.

The government's benchmark 10-year peso bond <MX10YT=RR> fell 0.476 of a point in price to bid 91.685 pushing its yield up 8 basis points to 9.07 percent.

The benchmark IPC stock index .MXX lost 0.50 percent to 28,070, on losses in miners as metals prices fell and weakness at telecommunications giant America Movil.

The central bank on Friday raised its key interest rate by a quarter percentage point to 8 percent at its monthly monetary policy review, warning of the inflation outlook despite signs of a slowing economy.

Expectations of Friday's rate hike had helped push the peso this week to its strongest since May 2003 as investors bet the spread between U.S. and Mexican interest rates would widen, making peso-denominated assets more attractive to investors.

Some analysts said the central bank's statement suggested it may need to further raise borrowing costs as Mexican inflation rises, mostly due to pressures from global food prices.

"Once the market realizes how hawkish the statement is, the peso will keep strengthening," said Alejandro Martinez, a fixed-income and currency analyst at HSBC in Mexico City.