UPDATE 1-Calif. declares drought emergency, mulls rationing

(Recasts, adds possible rationing details, background)

SAN FRANCISCO Feb 27 (Reuters) - California Governor Arnold Schwarzenegger on Friday declared a state emergency due to drought and said he would consider mandatory rationing in the face of nearly $3 billion in economic losses this year.

Agricultural revenue losses in the coming season in California, the most populous U.S. state, could top $2 billion, Schwarzenegger said.

"Even with the recent rainfall, California faces it third consecutive year of drought and we must prepare for the worst -- a fourth, fifth or even sixth year of drought," he said in a statement.

Schwarzenegger requested urban users to cut water consumption by 20 percent and state agencies to implement a water reduction plan.

The state water department will report on conservation progress by the end of March, and if the situation has not sufficiently improved, water rationing and mandatory cuts in water use could be instituted, the governor said.

California's main source of irrigation water is expected to go dry this year for most of its growers due to drought, idling at least 60,000 workers and up to 1 million acres of farmland, federal officials and experts said last week. (Reporting by Peter Henderson, Editing by Leslie Adler)