MEXICO CITY – Mexican bonds took a hit Thursday as investors doubted government price measures would do much to fight inflation and focused on uncertainty surrounding the direction of interest rates.

The benchmark government 20-year peso note tumbled 0.653 in price to bid 86.647, pushing its yield up 8 basis points to 8.97 percent. The yield is just 3 basis points from a two-year high.

The peso ended flat at 10.3115 per dollar, while the benchmark IPC stock index rose 0.78 percent to 29,847.85 points.

Most analysts expect Mexico's central bank to keep its key overnight interest rate steady at a monthly review on Friday, though a significant minority forecast a rate hike, a Reuters poll found Thursday.

The different views highlight uncertainty ahead of the monetary policy decision as inflation fears pummel Mexican bonds even though consumer prices have yet to exceed central bank forecasts.

“The market is very nervous,” said a bond trader.

Of the 25 analysts and economists surveyed by Reuters on Thursday, 18 see policy-makers keeping the overnight rate at 7.50 percent. Seven saw the bank hiking rates by 25 basis points to 7.75 percent to fight inflation.

The central bank's decision, due at 9 a.m. (GMT 1400), will come just two days after President Felipe Calderón announced a deal with retailers to temporarily freeze prices for some 150 food products in a bid to help control inflation.

“The (price) freeze didn't convince the market because many of these products are not important ... for inflation,” said another trader.

In stock trading, top retailer Wal-Mart de Mexico jumped 2.18 percent to 42.15 pesos.

Chemical company Mexichem soared 15.73 percent to 88.96 pesos after it signed a 5-year contract to supply U.S. oil firm Occidental Petroleum Corp.

Shares in building material firm Cemex, the world's No. 3 maker of cement, gave up 0.20 percent to 25.20 pesos. Its New York traded shares were down 0.12 percent at $24.35.

(Reporting by Jason Lange and Inaki Maillard; Editing by Diane Craft)