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By Carla Mozee

Mexican stocks fell Thursday, hurt by concerns about worsening economic conditions in the United States, its largest trading partner, and by a report that Mexican inflation climbed last month, leaving consumer prices perched at their highest level since 2000.

Mexico's benchmark equity index, the IPC, closed 0.7% lower at 21,955.40. The benchmark finished off its lowest levels of the session, but marked its fourth consecutive loss.

Shares of Wal-Mart de Mexico (WMMVY) fell 0.4%. The retailer on Wednesday said its same-store sales in December fell 0.8%. Fourth-quarter sales at stores open for at least a year rose 1.8% compared with the year-ago period.

The shares should be under pressure in the short-term, said Credit Suisse, in part because Walmex "does not have a competitive position as strong as the one held during previous downturns, limiting its defensive nature." The broker also reiterated its underperform rating on Walmex.

On Wall Street, the Dow Jones Industrial Average (DJI) fell 27 points, or 0.3%, to 8,742.46. Index component and the world's largest retailer, Wal-Mart Stores Inc. (WMT), surprised investors by cutting its fourth-quarter forecast after its same-store sales in December fell short of estimates.

Wal-Mart's "softness is concerning," said Ken Perkins of Retail Metrics. "Consumers are clearly feeling significant levels of pain and curtailing consumption accordingly."

Consumer spending accounts for two-thirds of the U.S. economy. Mexico sends more than 80% of its goods to the U.S.

Mexico's Finance Minister Agustin Carstens on Thursday said he expects flat economic growth in 2009 as a result of the economic recession in the U.S., according to media reports.

In Mexico City, shares of interest-rate sensitive banking stocks ended lower. Grupo Financiero Banorte lost 0.8%, Grupo Financiero Inbursa shed 0.2%, and Banco Compartamos shares fell 1.6%.

Mexico's central bank said Thursday that increased prices for food and gas pulled the consumer price index in December up by 0.69%, in line with the 0.66% estimate by economists surveyed by Dow Jones Newswires.

The move put 2008 annual inflation at 6.53%, up from 6.23% in November and well above the government's 3% annual inflation target.

Excluding volatile prices for food and energy, the core inflation rate was 5.73% last month.

The central bank has kept its key interest rate at 8.25% since September, and it has "delayed a potential relaxation cycle until the beginning of this year, despite the worsening of external conditions and the evidence of a deeper deceleration of the Mexican economy," said Alfredo Coutiño, senior Latin American economist at Moody's Economy.com, in a note Thursday.

Inflation will begin to decline during the first half of 2009 as international prices ease, he said.

"Under these circumstances, the monetary relaxation most probably will arrive when the economy will be approaching zero growth," said Coutiño, who also forecast Mexico's inflation rate in 2009 to be in the range of 4% to 4.5%.

On Wednesday, the Mexican government said it would freeze gasoline prices, lower electricity rates for businesses and inject 2 billion pesos into struggling industries in an effort to help offset pressure from sluggish conditions in the U.S.

Meanwhile, Standard & Poor's on Thursday projected that weighted average real GDP growth in Latin America in 2009 will drop to 2.1% from 4.8% in 2008.

Elsewhere on the market, shares of infrastructure concern Ideal fell 6.1% and construction company Carso Infraestructura & Construccion lost 5.5% to lead session decliners.

Ideal and Cisca, along with retailer Grupo Famsa, airport operator Grupo Aeroportuario del Sureste (ASR) and restaurant operator Alsea, will be exiting the IPC as of Feb. 3, the Mexican stock exchange operator said Thursday.

Entering the index will be exchange operator Bolsa Mexicana de Valores, airport operator Grupo Aeroportuario del Centro Norte (OMAB), steel maker Industrias CH SAB and mining firm Compania Minera Autlan.

In other regional markets, Chile's IPSA shook off losses to rise 0.3% to 2,485.67. The country's central bank on Thursday slashed its benchmark interest rate by a full point to 7.25%, more than market expectations for a cut ranging between 50 to 75 basis points.

Banco Central de Chile said in a statement that the move stems from expectations "of a significant fall in medium-term inflation, due to the drastic change in the macroeconomic outlook."

The government on Tuesday said the consumer price index in December dropped 1.2% as prices for fuel declined. Annual inflation stood at 7.1%, compared with 8.9% in November. The central bank's target for annual inflation is 3%, plus or minus one percentage point.

Shares of Banco de Chile (BCH) edged up 0.1% and Banco Santander-Chile (SAN) rose 1.4%.

Retailer Distribucion Y Servicio (DYS), which agreed last month to be purchased by Wal-Mart Stores, lost 0.8% on Thursday.

Brazil's Bovespa index rose 2.9% to 41,990.55. The index fell 3.5% on Wednesday.

Market heavyweight and oil giant Petrobras (PBR) shares rose 4.3% and iron-ore producer Vale (RIO) shares rose 3.7%.

Argentina's Merval finished 2% higher at 1,182.79.

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