Mexico's peso firmed sharply on Monday, tracking gains in the euro after a purchasing managers' survey in Europe confirmed the region's manufacturing sector expanded at its fastest rate in 21 months.

 The peso MXN=MEX01 traded 0.96 percent stronger at 12.9754 per U.S. dollar, pulling back from a high of 12.91, its strongest in a week, hit following the release of the euro zone factory data.

The final Markit Eurozone Manufacturing Purchasing Managers' Index for December rose to 51.6 from 51.2 in November, its highest level since March 2008. [ID:nLDE6030JH]

Mexico's peso has largely tracked the euro since the credit crisis in late 2008, gaining with the European currency as improving economic data stoked investor appetite for higher-yielding emerging market assets.

But the peso lagged the sharp gains seen in other emerging market currencies last year, hit in part by a debt downgrade. The peso gained around 5 percent this year compared with a 35 percent jump in Brazil's real.