FINANCIAL MARKETS : Mexico Stocks Soar After Speech by Zedillo

Mexican stocks soared to a nine-month high as investors cheered President Ernesto Zedillo’s pledge to boost spending to jump-start the economy.

In the first day of trading since Zedillo’s state-of-the-nation address Friday, the benchmark Bolsa index jumped 73.05 points, or 2.9%, to 2590.04--its biggest one-day gain in two months. The rally came as U.S. financial markets were closed for Labor Day, reducing demand from foreign investors.

“Investors are expecting that, as the president said in his first state-of-the-nation address, the recovery will be a priority in the next few months,” said Esteban Rojas, an analyst with Arka Casa de Bolsa SA.

Construction and cement companies, which stand to benefit from increased spending on public works projects, led the market’s rally. Empresas ICA Sociedad Controladora SA, Mexico’s largest construction firm, rose 4.5% to 79.5 pesos.

Mexico is coping with its worst recession in more than a decade, caused by the government’s decision to devalue the peso in December.

Zedillo told the nation Friday that the worst of the financial crisis is over. He said his administration could afford to increase public investment in the second half of the year without jeopardizing its goal to post a fiscal surplus in 1995.

In Asian trading, sharp drops in the speculative shares of smaller companies that had led the market recently hit the Tokyo market hard Monday. The 225-share Nikkei average closed down 372.21 points, or 2.05%, at 17,748.52, after falling as low as 17,637.62.

Fudo Construction, a focus of volatile trading recently, plunged 112 yen, or 10.5%, to 958 with 8.24 million shares traded.

“The drop in Fudo Construction had a large impact today. Its weakness pulled down other smaller shares as well. Some investors tried to push up high-tech shares, but in vain,” said Shuji Yasuma, general manager at Kankaku Securities.

The Labor Day holiday in the United States reduced buying by foreign investors, and that also contributed to the declines in Tokyo, brokers said.

In other overseas trading, the dollar held its own against the German mark and yen, and European stocks made solid gains. The dollar was quoted in London at 1.4635 marks and 97.60 yen, compared to Friday’s late U.S. levels of 1.4630 marks and 97.34 yen. Blue chips in London climbed back toward their all-time record closing high of two weeks ago, but volumes were thin. The FTSE-100 index of key British stocks closed at 3,522.7, up 13.3 points.