<?xml version="1.0" encoding="iso-8859-1" ?><newsitem itemid="2286" id="root" date="1996-08-20" xml:lang="en"><title>MEXICO: Recovery excitement brings Mexican markets to life.</title><headline>Recovery excitement brings Mexican markets to life.</headline><byline>Henry Tricks</byline><dateline>MEXICO CITY</dateline><text><p>Emerging evidence that Mexico's economy was back on the recovery track sent Mexican markets intoa buzz of excitement Tuesday, with stocks closing at record highs and interest rates at 19-month lows.</p><p>"Mexico has been trying to stage a recovery since the beginning of this year and it's always beengetting ahead of itself in terms of fundamentals," said Matthew Hickman of Lehman Brothers in New York.</p><p>"Now we're at the point where the fundamentals are with us. The history is now falling out ofview."</p><p>That history is one etched into the minds of all investors in Mexico: an economy in crisis sinceDecember 1994, a free-falling peso and stubbornly high interest rates.</p><p>This week, however, second-quarter gross domestic product was reported up 7.2 percent, muchstronger than most analysts had expected. Interest rates on governent Treasury bills, or Cetes, in thesecondary market fell on Tuesday to 23.90 percent, their lowest level since Jan. 25, 1995.</p><p>The stock market's main price index rallied 77.12 points, or 2.32 percent, to a record 3,401.79 points,with volume at a frenzied 159.89 million shares.</p><p>Confounding all expectations has been the strength of the peso, which ended higher in its longer-termcontracts on Tuesday despite the secondary Cetes drop and expectations of lower benchmark rates inTuesday's weekly auction.</p><p>With U.S. long-term interest rates expected to remain steady after the Federal Reserve refrained fromraising short-term rates on Tuesday, the attraction of Mexico, analysts say, is that it offers robust returns forforeigners and growing confidence that they will not fall victim to a crumbling peso.</p><p>"The focus is back on Mexican fundamentals," said Lars Schonander, head of researcher atSantander in Mexico City. "You have a continuing decline in inflation, a stronger-than-expected GDP growthfigure and the lack of any upward move in U.S. rates."</p><p>Other factors were also at play, said Felix Boni, head of research at James Capel in Mexico City,such as positive technicals and economic uncertainty in Argentina, which has put it and neighbouring Brazil'smarkets at risk.</p><p>"There's a movement out of South American markets into Mexico," he said. But Boni was also wary ofwhat he said could be "a lot of hype."</p><p>The economic recovery was still export-led, and evidence was patchy that the domestic consumerwas back with a vengeance. Also, corporate earnings need to grow strongly to justify the run-up in the stockmarket, he said.</p></text><copyright>(c) Reuters Limited 1996</copyright><metadata><codes class="bip:countries:1.0"><code code="MEX"> </code></codes><codes class="bip:topics:1.0"><code code="E11"> </code><code code="ECAT"> </code><code code="M11"> </code><code code="M12"> </code><code code="MCAT"> </code></codes><dc element="dc.publisher" value="Reuters Holdings Plc" /><dc element="dc.date.published" value="1996-08-20" /><dc element="dc.source" value="Reuters" /><dc element="dc.creator.location" value="MEXICO CITY" /><dc element="dc.creator.location.country.name" value="MEXICO" /><dc element="dc.source" value="Reuters" /></metadata></newsitem>