(Recasts, adds detail, updates prices)
MEXICO CITY, June 8 (Reuters) - Mexico's peso fell on Monday, as markets around the world were hit by expectations the U.S. Federal Reserve could tighten interest rates sooner than anticipated, but stocks ended flat after a late-day rally.
The peso weakened 1.20 percent to 13.415 per U.S. dollar.
After spending most of session in losing territory, the IPC stock index ended with a slight 0.08 percent gain at 24,932.88 points.
Better-than-expected U.S. jobs data on Friday increased expectations the U.S. recession will end later this year, helping push some U.S. Treasury yields to seven month highs as expectations rose that the possible timing of the first Fed rate hike might be advanced to late 2009 from early 2010.
Higher U.S. interest rates would make Mexican assets relatively less attractive.
"The driving factor this week will be the strengthening of the dollar against the majors following Friday's mixed U.S. employment report and the sell-off in the short-end of the U.S. yield curve," said HSBC in a note to clients, referring to Latin American currencies.
Mexico City-based brokerage Actinver said in a note to clients it expects the peso to trade between 13.50 and 13.80 per dollar this week.
The yield on Mexico's 10-year government peso bond rose 8 basis points to 8.10 percent.
Data in Mexico showed the country's automobile production fell 39.4 percent in May compared to the same month a year earlier, stung by slumping U.S. demand and the swine flu scare.
In stock trading, Banorte bank rose 5.43 percent to 32.61 pesos.
Supermarket chain Comercial Mexicana, trying to renegotiate over $1 billion in liabilities from soured derivatives bets, dipped 2.97 percent to 7.19 pesos.