MEXICO CITY – Mexico's peso weakened sharply Friday after soft U.S. personal income data stoked worries about Mexican exports, feeding growing expectations the central bank will not further hike interest rates.

The peso ended 0.46 percent weaker at the central bank's final 1:30 (1830 GMT) reference to 10.2875 per dollar, its softest level since mid-July.

It was the currency's second day of losses after weakening nearly 1 percent Thursday.

The IPC stock index closed 0.58 percent lower at 26,290.99 points on worries a weaker U.S. economy could drag down Mexico with it.

A government report showed U.S. personal income tumbled unexpectedly in July and spending slowed as the effects of government financial stimulus wore off.

“That spending number suggests there would be some contagion effects with respect to Mexico,” said Dustin Reid, a foreign exchange strategist at ABN Amro in Chicago.

Mexico sends around 80 percent of its exports to the United States and the direction of its economy is closely tied to the fortunes of its northern neighbor.

Also weighing on the peso were comments made by central bank chief Guillermo Ortiz Thursday that the country is seeing an end to a recent inflation spike caused by surging international food and energy prices.

“The peso depreciated due to a greater expectation that the Bank of Mexico could lower rates next year,” said Ricardo Aguilar, an analyst at Invex brokerage in Mexico City.

On top of the drop in international commodity prices fueled by a slowing global economy, the central bank has said that lower growth in Mexico should help further cool inflationary pressures.

Even with recent losses, the peso is still up around 6 percent for the year as investors seeking to beat the meager yields of U.S. Treasuries are attracted to Mexican debt.

In debt trading, the government's benchmark 10-year peso bond ended flat with a price of 95.497 and a yield of 8.45 percent, after yields rallied to their lowest levels since early June on the back of Ortiz's comments Thursday.

In the equities market, shares of top retailer Wal-Mart de Mexico lost 1.57 percent to 37.53 pesos, its lowest close in nearly seven months.

Miner Penoles, Mexico's top producer of lead, fell 4.31 percent to an 11-month low of 169.51 pesos as metals prices dropped, with lead down 5 percent.

America Movil, Latin America's biggest cell phone operator, slipped 0.42 percent to 26.36 pesos while its shares on Wall Street lost 0.73 percent to $51.38.

(Reporting by Michael O'Boyle; Editing by Leslie Adler)