Written by Charles Newbery, Alex Manda and Daniel Horch

BUENOS AIRES, MEXICO CITY and SAO PAULO, Feb 22 (MNI) - Markets will be watching for a new 10-year syndicated bond issue this week, a novel mechanism for Mexico, expected to be between 15 and 25 billion pesos.

The bond is expected have a coupon of 8% using a structure common in international bond markets to boost liquidity in a bid to draw in foreign demand.

Domestic markets have already slashed yields on existing benchmark bonds to below 8% anticipating a rush of foreign demand, equivalent to around 20% of all foreign capital market investment in Mexico.

Along with the syndicated bond announced last week, the Finance Ministry also said the peso bonds could being included in Citigroup's World Government Bond Index (WGBI) during the first quarter.

Markets are also waiting for the government to announce new central bank reserve accumulation tools, designed to protect Mexico from sharp peso appreciation resulting for sharp increases in capital inflows.

It will be a busy week for Mexican data this week. State statistics institute INEGI will release 2009 gross domestic product Monday; and December retail and wholesale sales Tuesday, along with the preliminary January trade balance.

Economists expect full-year GDP contracted between 6.7% and 6.8%, and is unlikely to surprise. For the first three quarters of 2009, the economy contracted 8.1%.

The global economic activity index, the monthly GDP approximation, showed year-over-year contractions of 5.25% in October and 1.47% in November -- the smallest drop since October 2008 -- though the month-over-month increases have been fairly steady since June.

GDP posted quarterly declines of 7.9%, 10.1% and 6.2% in the first three quarters.

"We are expecting a strong relative number on a year-on-year basis, because we believe industrial production is recovering fast," said Pedro Tuesta, chief Latin America Economist at U.S. consultancy 4cast.

4cast estimates fourth quarter GDP will show a 1.2% decline from 2008, compared with a consensus forecast for a 2.6% drop.

Industrial production rose 1.6% in December from a year earlier, the first year-on-year increase since April 2008.

Days after the industrial production report, the Finance Ministry raised 2010 growth expectations to 3.9% from 3.0%.

Alfredo Coutino from Moody's Economy.com is optimistic about December retail sales, due Tuesday. "We are forecasting 0.5% growth, that would be the first positive annual rate in more than a year."

The Bank of Mexico will release first half February CPI Wednesday, while INEGI release the December service sector index. INEGI releases January employment and December manufacturing data Thursday, while the central bank releases fourth quarter current account data, and the Conference Board releases December leading indicators.

With traders in Sao Paulo divided as to whether the Copom will raise rates at its March 17 policy meeting or wait until April or even June, data releases this week may move the rate curve.

Brazil's GDP is likely growing at over 6% at present, while last week's release showed that January formal sector job creation was the highest since surveys began in 1992.

The IBGE Tuesday will release the midmonth IPCA-15 survey of consumer prices over the previous 30 days, which is expected to show a high headline inflation number.

The Sao Paulo consultancy Tendencias, for example, is forecasting the IPCA-15 will rise 0.85%, while Brazil's second largest bank, Banco Bradesco, is predicting a 0.95% spike in inflation.

Analysts will however be looking more closely at the core numbers, as seasonal factors are currently driving up inflation, which is expected to ease as the year goes on.

Still, the market consensus forecast is for 4.8% IPCA inflation this year, above the 4.5% target.

IBGE also will release December retail sales Tuesday, and January unemployment Thursday, which measures both the formal and the undeclared work force. Both figures are likely to indicate domestic demand will continue to spur rapid economic growth.

One consequence of this growth is a growing current account deficit, which the Central Bank's survey of local financial institutions forecasts will to exceed $50 billion this year. The Central Bank will release the January current account balance Tuesday.

On the political front, Brazil's Chamber of Deputies has still not voted on petroleum sector legislation, which would include a capitalization of Petrobras via an public equity offering.

Last week the president of Brazil's state-owned development bank, BNDES, said even though such a discussion was "premature," since he expects Congress to pass the legislation, BNDES has reserves to loan Petrobras enough funds to allow the company to fulfill its investment plan this year, potentially around $20 billion.

Argentine President Cristina Fernandez de Kirchner this week will meet with top executives to discuss methods for boosting productivity in the face of accelerating inflation and to drum up support for paying foreign debt with international reserves.

Luis Betnaza of Techint Group, a leading industrial conglomerate, said last week the meeting Wednesday will have am "open agenda."

The meeting likely will touch on inflation, which is expected to speed up to an annual rate of 20% this year from 14% in 2009. The president might offer low-interest credits for expanding production and rein in inflation, in response to calls for more financing.

At the bidding of Planning Minister Julio de Vido, the president is turning to executives for support to create a $6.6 billion Bicentennial Fund with central bank reserves for paying down part of the $13 billion in debt due this year.

She tried to establish the fund by decree late last year but it was blocked by the courts, sparking a political crisis that led to the ouster of Martin Redrado as central bank chief.

Financial paper Ambito Financiero reporte that a court could give the go ahead for the fund Monday or Tuesday. If this happens, the government will be able to access the funds before Congress reconvenes March 1. Fernandez de Kirchner's Front for Victory party lost control of both houses in last year's election.

Creation of the fund may spark pressure from creditors seeking full repayment on bonds from a $95 billion default in 2001.

This week, Economy Minister Amado Boudou and newly-installed Central Bank President Mercedes Marco del Pont will continue to hold meetings with business leaders on getting inflation under control.

Last week, they created a council for coordinating economic, financial and exchange rate policies and downplayed inflationary concerns. They said measures will be taken, including steps to improve productivity by increasing installed capacity.

Boudou also may announce further details of a planned $20 billion debt swap. Last week, he said the U.S. Securities and Exchange Commission was due to respond to its request approval for the swap.

The government will release a series of economic indicators for January this week, beginning Tuesday with trade, and followed Wednesday with shopping mall sales, Thursday with supermarket sales and Friday with construction activity and use of public services.