UPDATE 2-Mexico asks IMF to renew $48 bln credit line

* Mexico seeks 1-year extension on $48 bln IMF credit line

* Policymakers worried about end to economic life support

* Announcement helps peso currency strengthen (Adds quote from IMF official, background and byline)

By Jason Lange

MEXICO CITY, March 10 (Reuters) - Mexico asked the International Monetary Fund to renew a $48 billion credit line on Wednesday to protect against possible market turmoil when rich nations withdraw life support from their economies.

Mexico, a major U.S. trading partner and Latin America's No. 2 economy, is recovering from its deepest recession since the 1930s. Its financial markets have stabilized since the global financial crisis exploded in late 2008.

But it and other poor countries are still concerned about what will happen when the United States and other rich nations eventually raise interest rates and rein in spending.

Higher U.S. rates could lead investors to pull money out of emerging markets like Mexico to invest them in U.S. debt. Weaker government spending could slow the U.S. economy, which absorbs about 80 percent of Mexican exports.

"The eventual withdrawal of monetary and fiscal support in industrial countries could cause a correction in the prices of some assets," the ministry and central bank said.

News of the request helped the Mexican peso MXN= to strengthen 0.28 percent to 12.59 per U.S. dollar.

The loan program is part of the IMF's Flexible Credit Line, which was set up in early 2009 to help well-managed emerging market countries weather the global crisis.

Poland said last month it would likely renew its credit line.

Mexican Central Bank Governor Agustin Carstens has said Mexico would like to gradually extricate itself from the IMF credit line after building up international currency reserves -- also with an aim to warding off future market volatility.

In a joint statement announcing the request to the IMF, the finance ministry and central bank said Mexico wants a 1-year extension on the credit line, which it opened last year and was set to expire in April.

A senior IMF official said the institution would work to quickly approve Mexico's request.

"A successor Flexible Credit Line arrangement can play an important role in continuing to support Mexico's policy strategy and in maintaining external confidence," said IMF First Deputy Managing Director John Lipsky.

A sharp drop in U.S. demand for Mexican exports like cars and refrigerators led Mexico's economy to contract 6.5 percent last year. The country also was hit by sliding oil production and political gridlock, leading rating agencies Standard & Poor's and Fitch to downgrade the country's debt rating.

The Mexican government expects economic growth of 3.9 percent this year.

(Editing by Kenneth Barry)