By Carla Mozee

Brazil's equity benchmark slipped Thursday, unable to cling to gains as oil prices surged, while, Mexico's currency spiraled to a record low against the U.S. dollar as worries about the health of the economy lingered.

Brazil's Bovespa fell 0.1% to 38,180.18, with shares of market heavyweight and oil giant Petroleo Brasileiro (PBR) up 1% as crude-oil futures hit their highest level in a month, above $45 a barrel, after a decline in U.S. gasoline inventories.

Fellow market heavyweight Vale (RIO) saw its shares edge up 0.2%, the only stock in the steel group to advance.

The market found support early in the session from the U.K. Treasury's announcement that it would insure more than $460 billion of Royal Bank of Scotland Group's assets after the bank posted a 2008 loss of 24.1 billion pounds, the largest corporate loss ever in British history.

The commitment from the U.K. followed cautious optimism on Wall Street that the combination of the government's stress tests on banks and the ability of them to raise common equity capital with help from the government will help stabilize the financial system.

In Brazil, interest-rate watchers also received news that inflation as measured by the IGP-M price index rose 0.26% in February from January, below expectations for a rise of 0.43%.

Shares of most interest-rate sensitive rate banks finished higher. Banco do Brasil rose 0.8%, Banco Nossa Caixa gained 1%, Banco Bradesco (BBD) rose 0.7% and Banco Itau (ITU) picked up 0.2%.

Market decliners were led by Redecard. Its shares stumbled 6.9%, its worst percentage loss since September, on news that Citigroup Inc. (C) plans to sell its 17% stake in the credit-card processor.

The IPC index in Mexico slipped 0.8% to 18,047.14, returning to its lowest level since October.

Banking firm Grupo Inbursa shares fronted declines by losing 5.2% , and Banco Compartamos shares fell 5.2% despite receiving a buy rating from UBS Pactual upon the broker's initiation of coverage of the micro-lender.

"We believe Compartamos is a solid defensive option in this environment due to a-cyclical business model, as its clients' businesses focus on consumer essentials, and higher unemployment may increase demand for its loans," wrote UBS analysts Juan Partida and Eduardo Nishio, who have a 12-month price target of 34.5 pesos.

In currency dealings, the peso slid to a record low of 14.96 pesos against the greenback. The currency has been slammed in recent months, with pressure driven largely on worries about worsening economic conditions in Mexico as its largest trading partner, the U.S., battles its own recession.

A big source of concern stems from the crisis in the housing market. On Thursday, the U.S. Commerce Department estimated that despite a decline in housing prices, sales of new homes fell 10.2% in January to a record-low rate of 309,000.

In a surprise move last week, inflation concerns trumped economic worries at Mexico's central bank, which cut interest-rates by a less-than-expected 25 basis points.

Win Thin, senior currency strategist at Brown Brothers Harriman, said in a note Thursday that the central bank "takes into account the peso's effect on inflation, which suggests that the weak peso was a factor" behind the rate-cut decision.

"If the US economy stabilizes first as we expect, then Mexico has the potential to rebound the fastest amongst the [emerging market] countries," he wrote. "However, we are months and months away, and in the meantime, the central bank should cut more aggressively."

At RBC Capital Markets, currency analysts wrote late Thursday that the fate of Banamex --Citigroup's Mexican subsidiary -- remains a "major drag" on the peso.

Market players largely fear that if the U.S. raises its stake in Citi to 40%, that the bank will have to sell the profitable division, said the analysts. Mexican law prohibits institutions owned by a foreign government from operating a bank in Mexico.

As Banamex could "fetch a $10 billion to $15 billion price tax, its impact on [the peso] could be significant depending where financing for the deal is sourced (in Mexico or the U.S.)," they wrote.

In Argentina, the Merval slipped fractionally to 1,009.63. Chile's IPSA fell 0.8% to 2,516.99.