(updates, adds quotes, background)
By Sujata Rao
LONDON, Feb 5 (Reuters) - It would be sensible for Mexico to keep its flexible credit line with the International Monetary Fund (IMF) -- either partially or fully -- while world financial markets remain volatile, the country's Deputy Finance Minister Alejandro Werner said on Friday.
"Given that our level of international reserves was deemed insufficient by the market and given there are still significant risks in the world economy, that may trigger bouts of volatility as we have seen in the last five days, it will be sensible to maintain the flexible credit line," he told Reuters.
"The most important analysis we are doing is whether we will be asking the IMF for a 100 percent access (to the credit line) or something slightly lower than that," Werner said.
Mexico's finance minister and central bank governor have said in recent weeks that the country would seek to extricate itself from the credit line which was provided last March amid the global financial meltdown.
But Werner said: "In terms of international capital market volatility we are not out of the woods yet. I think the IMF designed a very useful instrument which was very useful to the Mexican economy throughout 2009. I think it's prudent to maintain that instrument in 2010."
He said the decision would be announced sometime in the next two months.
Werner said also it was vital to boost Mexico's currency reserves pile from current levels above $91 billion. The central bank has, since October 2008, sold almost $32 billion to forex markets.
"It is hard to pinpoint an optimal level of reserves but at the peak of the crisis investors felt it was insufficient. So we are starting from the presumption that a higher level is desirable," he added.
Mexico, Latin America's second largest economy, is only just starting to emerge from its worst slump in decades and the economy is expected to have contracted 7 percent last year.
But while analysts predict gross domestic product to grow by 3 percent in 2010, the government has so far stuck to a conservative 3 percent estimate.
Werner said the 3 percent forecast would likely be revised upwards but the government would prefer to wait for more data before amending the number.
"Initial data suggests that the behaviour of the Mexican economy ... could allow growth to be stronger than 3 percent," he earlier told investors.
About 80 percent of Mexico's non-oil exports go to the United States, making the economic recovery reliant on fragile U.S. consumer demand.
Werner added that foreign direct investment into Mexico is likely be over $15 billion this year, estimating last year's full-year inflows around $12 billion. This is however much lower than the $22.5 billion received in 2010.