UPDATE 3-Mexican peso stung by fears of U.S. banking contagion

(Updates prices with local stocks higher) MEXICO CITY, March 13 (Reuters) - Mexico's peso briefly fell more than 3.5% against the dollar in early trading on Monday as traders feared market contagion following the collapse of two banks in the United States. U.S. lenders Silicon Valley Bank and Signature Bank went under late last week, with the U.S. government rushing to help depositors over the weekend. The peso was volatile and was trading down 2.3% at 18.92 per dollar by 1:05 p.m. EDT (1705 GMT). Luis Gonzali, head of investment at asset manager Franklin Templeton Mexico, said the peso's fall showed "a flight-to-quality issue" due to the risk of a "debacle" in the banking system as investors sought refuge in safe-haven assets. Since last week, markets have significantly lowered the chances that the U.S. Federal Reserve's benchmark overnight interest rate will eventually reach 6% - it is currently in the 4.50%-4.75% range.

While a slowdown in the pace of U.S. central bank rate hikes could have been a negative to the dollar, the possibility of it coming on concerns over stability in the U.S. financial sector has triggered de-risking strategies among investors.

Mexico is closely integrated with the U.S. economy, relying on it for a steady stream of remittances and trade, making a rush out of pesos a de-risking strategy. Victor Gomez, economics professor at ITAM, said the Mexican currency's drop was due to the strengthening of the dollar rather than a fall in the value of the peso, which earlier this month rose to near a five-year high. "(The Fed) will now focus on the macroeconomic risks, which will help its risk profile and push the dollar up against other currencies," he told Reuters. Shares in Mexican banking stocks were also down on Monday, with Banorte falling 2.4%. The local stock benchmark fell as much as 1.1% in morning trading but was last up 0.9%, while stocks in dollars dropped 2%. Debt spreads widened marginally . (Reporting by Stefanie Eschenbacher and Dave Graham in Mexico City; Additional reporting by Rodrigo Campos in New York; Writing by Isabel Woodford; Editing by Paul Simao and Jonathan Oatis)

Reuters

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off-the-wire

UPDATE 3-Mexican peso stung by fears of U.S. banking contagion

By Reuters

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