By Carla Mozee

Mexico's equity benchmark and its currency rose Friday, aided by word that the country's pension-fund association plans to only invest in local assets for a while, and Chile's currency rose following another big interest-rate cut from the country's central bank.

Mexico's IPC index rose 3% to 19,437.01, extending its 6% surge on Thursday.

The broad rally was fronted by industrial stocks such as metals firm Penoles, up 9.8%, and copper miner Grupo Mexico, as well as telecom firm Carso Global Telecom and electronics retailer Grupo Elektra.

Market heavyweight America Movil (AMX) rose 1% and Telefonos de Mexico (TMX) rose 1.5%. Banks finished higher, with Banorte up 4.2%.

In exchange-traded fund action, the iShares MSCI Mexico Index Fund (EWW) jumped 4%. It leaped 16.8% for the week, its best weekly performance since the week ended Nov. 28.

The two-day equity surge followed reports about a plan under which private pension-fund managers in Mexico, known as Afores, would limit their investment of new money to local securities over the next year.

An accord is reportedly being drafted and could be signed next week.

Inflows into pension funds have averaged about $1 billion in the last four months, and 90% of the assets are invested in domestic fixed-income and equities, according to Guilherme Paiva, senior Latin American equity strategist at Deutsche Bank.

Paiva said he more details about the plan need to be outlined for the market to truly assess its possible impact.

If the agreement only impacts flows, "it's a nonevent for us, really," he added. "We're talking about $5 million per day of flows in [securities markets], and turnover in the Mexican peso market is $16 billion per day. So it's really a drop in an ocean."

If 10% of the funds' current total assets of about $60 billion are repatriated, Paiva said, "then we're starting to talk real numbers that could have some impact on the valuation of the currency and the local equity market."

Analysts at Barclays Capital Research on Thursday wrote that they believe it's "highly unlikely that the accord will involve a 'repatriation' of assets held abroad," and in its estimation "the news implies only $70 million per month deviation of funds toward additional demand for pesos."

Though the amount from inflows may not have a long-term impact, the proposal "was well accepted" by the market as the plan could help limit "money from leaving the country," said Italo Lombardi, an economist covering Latin America at RGE Monitor.

Mexican equities and its currency have been under pressure because of investors concerns about deteriorating economic conditions in the country, due largely to its close ties with the United States which is battling its own recession.

The IPC index is down 16% on a year-to-date basis, and the peso has logged a series of new all-time lows against the greenback this year, including a breach of the psychologically key level of 15 pesos per U.S. dollar.

On Friday, the Mexican peso traded more than 1% at 14.565.

In Chile, the currency strengthened 0.8% to 592.30 pesos per U.S. dollar, a day after the central bank surprised the market with a larger-than-expected rate cut of 250 basis points, to 2.25%.

"You would expect a currency to lose some ground when a central bank cuts rates too aggressively," said Lombardi. "But in this case, traders and analysts are looking at the economic side of the equation. The fact that the central bank is aggressive, they might be able to solve the economic situation faster and make the currency and Chilean assets more attractive."

Lombardi noted that the Brazilian real also saw gains after it cut its interest rate by 150 basis points to 11.25% earlier this week.

Chile's policy-makers said its decision stemmed from "a projected fast decline in inflation." The bank's inflation target is 3%.

The cut was larger than the projection by analysts surveyed by Dow Jones Newswires for a cut of 175 basis points. Banco Central de Chile in February also cut its rate by a more-than-expected 250 basis points.

Win Thin, senior currency strategist at Brown Brothers Harriman, said the currency markets have been "rewarding countries that are being aggressive" and that Chile's peso benefited from that viewpoint.

"But my retort would be, 'Well, they're aggressive, but this is a little bit late.' They should've been cutting rates much sooner," commented Thin.

On Friday, Brazil's Bovespa index fell 0.3% at 39,047.63 and Argentina's Merval rose 1.6% to 1,028.19.

The regional indexes finished higher for the week, led by the IPC. Its 14% gain was the biggest since late November.

The Merval rose 8.1%, the Bovespa gained 5.8% and the IPSA rose 3.6%, and all of them snapped a four-week losing streak.