Mexican shares drop

The Mexican stock index dropped 1.05 percent to 29,533.44 points on Friday. In stock trading, shares in cement maker Cemex fell 2.18 percent to 24.65 pesos, while conglomerate Alfa fell 2.11 percent to 74.17 pesos. Shares in Group Modelo ended down 3.16 percent at 53.02 pesos.
The brewer's chief executive Carlos Fernandez resigned from the board of US partner Anheuser-Busch Cos Inc, which owns 50 percent of the Mexican company. Fernandez's move could signal the loss of a potential key ally in the US brewer's fight to fend off an unsolicited $46.3 billion take-over bid from Belgian-Brazilian beer giant InBev NV.
Energy prices better than most other countries in Latin America, but its annual rate spiked to 4.95 percent in May, the highest in more than three years. The rate hike widens the spread between the US target interest rate and Mexico's key rate, making peso-denominated assets more attractive to investors. Long-term Mexican bonds surged following the decision as investors bet the rate hike would help reduce inflation.
The price of the benchmark 20-year peso bond rose 0.328 of a point to bid 86.975, pushing its yield down 4 basis points to 8.93 percent. Investors loath inflation because it eats into the value of their assets. "The uncertainty about a hike in interest rates has dissipated and investors are more confident about going into the bond market, so that's why there's a generalised fall in yields," said a Mexico City-based trader.
Mexico's peso jumped to a five-year high against the dollar after the central bank raised its key interest rate for the first time in eight months to tackle rising inflation. The peso strengthened 0.36 percent to 10.2750 per dollar, its strongest central bank close since early June 2003.
The central bank lifted the key rate by 25 basis points to 7.75 percent at its monthly monetary policy review, saying inflation could increase beyond its forecast, although it also said risks to economic growth persist. The peso has gained 6.28 percent this year as the United States has cut interest rates while Mexico has sought to fight persistent inflation with a higher rate.