Mexican shares hurt by last-minute sell-off

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Program trade reportedly behind sudden downturn

Stocks in Mexico dropped Tuesday, hit by a sell-off in the last stages of the trading session.

Mexico's IPC fell 1.7% to 21,216.94, erasing earlier gains that it had logged as equities tracked a rebound on Wall Street. The benchmark dropped 2.9% on Monday.

The fall toward the close of Tuesday's session was prompted by program trading through the local Santander brokerage on the part of an institutional client, according to a Dow Jones Newswires report, citing traders.

The drop left shares of industrial Grupo Carso down 7.1%.

Mexican stocks had found firmer footing during the day as positive comments from U.S. banking executives and U.S. Treasury Secretary Timothy Geithner helped spur purchases of financial stocks, lifting U.S. indexes. The S&P 500 Index ($SPX:

S&P 500 Index

 Last: 850.08+17.69+2.13%

$SPX 850.08, +17.69, +2.1%) rose 2.2% and the Dow Jones Industrial Average ($INDU:

Dow Jones Industrial Average

 Last: 7,969.56+127.83+1.63%

$INDU 7,969.56, +127.83, +1.6%) rose 1.6%.

The gains on Wall Street came despite a spate of dreary quarterly reports, including one from heavy-equipment provider Caterpillar Inc.

CAT 31.39, +0.91, +3.0%) , which expects a global economic contraction of 1.3% this year.

In Mexico City, shares of Fomento Economico Mexicano (FMX: FMX 29.17, +1.06, +3.8%) , or Femsa, were able to finish in positive territory after the market sell-off. The shares rose 1.7% after UBS Pactual initiated coverage of the brewer and soft-drinks maker with a buy rating.

"We believe Femsa's current valuation is attractive -- considering strong cash generation at Coca-Cola Femsa, improving beer operations," and room for continued earnings growth at its convenience-store chain OXXO, said analysts Tomás Lajous and Albelardo Hernández in a note to clients Tuesday.

UBS also said it prefers Femsa to Grupo Modelo, as it believes Femsa's retail arm "is under-valued, and much too big to ignore." The broker has a buy rating on brewer Grupo Modelo's shares.

Modelo shares finished down 6% ahead of the release of its first-quarter results. The shares were also under pressure after Modelo said Monday that it won't issue a dividend payment for 2009.

"Whether the decision was driven by the lawsuit with [business partner Anheuser-Busch InBev] or by the need to save cash in a difficult year, either one sends a negative signal that could weigh on the stock in the near term," said analysts at Deutsche Bank.

Banking stocks were mixed after the Senate cleared a bill that would increase the central bank's authority to regulate fees and interest rates charged by banks to consumers.

Grupo Financiero Banorte (MX:GFNORTEO: news , chart , profile ) shares fell 3.9% and Banco Compartamos fell 2%, while Inbursa rose 1.1%.

The peso rose 1.8% against the U.S. dollar in the wake of the central bank's sale of $3.2 billion in dollar credits by way of a $30 billion swap line the bank has with the U.S. Federal Reserve. The peso fell more than 2% a day ago.

Chile's IPSA rose 1.1% and Argentina's Merval gained 2.1%.

Markets in Brazil were closed Tuesday for a holiday.

Elsewhere in Latin America, Colombia has asked the International Monetary Fund for a $10.4 billion credit line. Mexico was recently approved for access to a $47 billion credit line, and the agency will talk with Poland about its request for $20.5 billion.