(Adds comments from Pena Nieto, new economist quote, updates markets info)
By Sheky Espejo and Michael O'Boyle
MEXICO CITY, Oct 29 (Reuters) - Mexico's incoming president said on Monday his government would cancel construction of a partially built $13 billion new airport for Mexico City, a decision which left investors fretting over how he would manage the economy and led to sharp falls in the currency and stockmarket.
President-elect Andres Manuel Lopez Obrador said his administration, which takes office on Dec. 1, would heed the results of the informal referendum that called for abandoning the current project.
Instead, a military air base north of the capital will be converted for commercial use to ease overcrowding at the current hub.
The move puts Lopez Obrador's government in a confrontation with the country's business elite, whom he criticized during his election campaign but had sought to soothe following his landslide election victory. Markets had welcomed Lopez Obrador's pledge to stick to orthodox fiscal policies after his election.
Companies owned by the family of Mexican billionaire Carlos Slim, once the world's richest man, were co-designing, co-financing and co-building the project. Mexico's pension funds also put up money through an infrastructure investment trust.
"People had given Lopez Obrador the benefit of the doubt that he would be a pragmatic governor. That essentially collapsed. People are reassessing everything about Mexico," said Gustavo Rangel, economist at ING in New York, said.
"I don't think the administration understood the importance of this decision."
Mexico's peso tumbled around 3.6 percent, blowing past the key 20 per U.S. dollar level after Lopez Obrador's announcement.
The peso's losses were the most of any major currency on Monday, while the country's benchmark stock index closed down 4.2 percent. Both the currency and stock market saw their worst one-day losses since the aftermath of the election of U.S. President Donald Trump in November 2016.
Several economists said the peso's losses made it more likely that the central bank would raise interest rates.
The public was asked over a four-day public consultation that ran from Thursday to Sunday to weigh in on the fate of the new airport, and Lopez Obrador, who had called for the referendum and was against the new airport, pledged to respect the result.
Roughly a million people, or about 1.0 percent of Mexico's electorate, participated.
"The decision is to obey the will of the people," Lopez Obrador told reporters at a news conference.