Workers strike at VW's Mexican plant

PUEBLA, Mexico (Reuters) - Workers at Volkswagen AG's Mexican plant went on strike on Tuesday after wage negotiations between the company and the plant's union broke down, complicating Mexico's already battered auto sector.

Workers shouting slogans hung red and black strike banners at the entrances to the factory in the central state of Puebla, the company's only plant that makes the New Beetle model.

Volkswagen (VOWG.DE) is one of Mexico's biggest manufacturers, and like the rest of Mexico's auto industry its Mexican plant has been hit hard by the U.S. recession. Mexico's auto output fell 25 percent in July from a year earlier.

Mexico's plummeting auto exports have been a leading factor in the country's recession, with the economy this year expected to contract more than anytime since 1932.

Volkswagen builds 1,500 cars a day at the plant for both the Mexican market and for export.

A Volkswagen spokesman in Germany said the company did not expect a significant impact from the strike as contract negotiations were scheduled to resume soon.

Workers are seeking a 3 percent wage increase, union leader Victor Cervantes told Reuters as he left the labor ministry in the capital, where wage negotiations were taking place.

Volkswagen said in a statement that it had offered a 1 percent increase in wages starting in February 2010, as well as a 5,500 peso cash bonus.

"It was not possible to reach a deal," Volkswagen said.

Talks between the two sides are set to resume on Thursday.

(Additional reporting by Alberto Fajardo and Tomas Sarmiento)