Mexico's foreign reserves rose to a record level last week as the government cashed in on put options it purchased last year to protect the 2009 budget from fluctuations in the price of Mexican oil.

Mexico's international reserves soared $5.92 billion last week to $86.56 billion as of Dec. 11, the Bank of Mexico said Tuesday.

The federal government sold the central bank $5.09 billion--mostly from the oil hedge--while state oil monopoly Petroleos Mexicanos, or Pemex, exchanged $1 billion for pesos.

On the other hand, the Bank of Mexico said it sold $11 million in the exchange market, while other operations resulted in a net decrease of $162 million.

The Mexican government hedged much of this year's oil output at $70 a barrel when prices soared to record levels in 2008.

Finance Minister Agustin Carstens said this month that the state made a $3.5 billion profit through the hedging program after it paid about $1.5 billion for the put options.

The $5 billion in revenue that the government received from the hedges and exchanged for pesos last week was enough to push the Bank of Mexico's reserves above the previous record of $86.88 billion, set in July 2008.

The new record marks a drastic upturn in Mexico's foreign reserve levels, which fell to a 2009 low of $72.6 billion in August after months of central bank interventions in the exchange market.

To reduce the extreme volatility that took hold of local financial markets late last year, when the global economic crisis hit full swing, the Bank of Mexico stepped in with daily dollar auctions and occasional unscheduled interventions in the market.

Between October 2008 and September of this year, the bank sold about $31 billion in the exchange market. The central bank ended its daily auctions in September, but continues to offer $250 million on days when the peso is 2% weaker against the dollar.

Mexico's peso, which reached an all-time low MXN15.60 to the dollar in March this year, has since strengthened to less than MXN13 to the dollar.

The currency was recently quoted in Mexico City at MXN12.7235 to the dollar, compared with MXN12.7480 at Monday's close.