CHICAGO Nov 2 (Reuters) - Europe must regain investor confidence as it works to resolve the region's debt crisis, Mexico's central bank governor said on Wednesday, adding that events in Europe will play a critical role in determining Mexico's own interest rate path.

Agustin Carstens, the central bank head, also said Mexico has not been asked to invest in the euro zone's rescue fund, saying that he favors working through the International Monetary Fund.

"I think what needs to be done is two things: one, to move forward with implementation, and second, to feed more details to the market," Carstens said of what is needed from Europe on its plan to resolve its debt crisis.

"I think that the markets need to have a clearer picture of what they are trying to do," Carstens said in an interview after speaking at the University of Chicago Booth School of Business. "Europe needs markets to be willing to take European risk, and right now they are not taking it.

Leaders of the Group of 20 developed and emerging economies will meet in France on Thursday and Friday, and policymakers hope to secure pledges of more money to help resolve the bloc's debt crisis.

Europe is looking to countries with big foreign exchange reserves, such as China, Japan and major emerging economies, to provide the extra financial firepower to strengthen the euro zone's rescue fund by four- to five-fold, to about 1 trillion euros.

Mexico has not been asked to chip in to the euro zone rescue fund, Carstens said. "I would join other emerging markets in suggesting that probably the best way to do it is through the IMF," he added.

"NEUTRAL BIAS"

Although traders have been betting that Mexico's central bank will soon join Brazil in lowering borrowing costs, Carstens described the Mexican central bank's stance as "neutral." He said the bank was watching both the slowdown in the European economy and the volatility in European financial markets.

"We have to see how those two forces interact, and that will pretty much decide the decision of the central bank," he said.

Analysts surveyed by the Mexican central bank late last month cut their growth forecast for the fifth straight month as well as their view on inflation, but do not foresee the central bank lowering lending rates before next year.

Investors on Tuesday saw a slightly more than 50 percent chance that the central bank would cut rates at its next policy meeting in early December. Mexico markets were closed on Wednesday for a holiday,

The central bank has kept the benchmark rate at 4.5 percent for more than two years.

Carstens also said the Mexican peso "has depreciated probably too much," given the country's strong economic fundamentals.

Worries about Europe have spurred investors to flee assets they view as riskier and pile into currencies that are more liquid.

"Once the dust settles in the international financial markets we should see an appreciation of the peso," Carstens said.

Mexico is struggling to recover from a deep recession in 2009, with growth seen well below 4 percent this year and just 3.24 percent next year. The country is particularly vulnerable to lower demand from the United States, its biggest export market.

But while Carstens offered some policy recommendations for the United States, including advice to concentrate on fixing the housing sector, he made it clear he is more focused across the Atlantic.

"What we are afraid of is volatility to the international markets," he said. "What we would like to see is as fast as possible stabilization effort, and of course right now Europe the center of attention."