Mexico drug hitmen kill governor candidate

MEXICO CITY (Reuters) - A popular gubernatorial candidate in the northern Mexican state of Tamaulipas was murdered by suspected drug hitmen on Monday in the worst sign so far of political intimidation by smuggling gangs.

Traders sold Mexico's peso heavily as TV images showed the bodies of Rodolfo Torre, 46, and four aides from the opposition Institutional Revolutionary Party, or PRI, which holds power in Tamaulipas, lying on a highway. They were ambushed on their way to a campaign event for the July 4 state election.

It was Mexico's highest-level political murder in some 16 years and the latest blow to the country's image as a stable emerging market as drug gangs brazenly fight security forces deployed to quash their power and try to sway Sunday's vote for governors, mayors and local deputies in a dozen states.

"This is not a message, it's a challenge. How far are they prepared to go?" said national security specialist Javier Oliva at Mexico's National Autonomous University in Mexico City.

President Felipe Calderon slammed what he called a cowardly attack on Mexico's democratic institutions and vowed to keep up his fight against drug gangs. He called an emergency security cabinet meeting and urged political parties to stand together.

Interior Minister Fernando Gomez Mont condemned the attack as "absolutely reprehensible" and headed to Tamaulipas, over the border from Texas, to support the PRI leadership there.

Mexico is in the grip of an escalating drug war that has killed more than 25,500 people, mainly traffickers and police, since Calderon took power in 2006 and launched his crackdown.

The soaring death toll worries Washington, investors and tourists. Monday's killing will fan fears that Mexico could go the way of Colombia in the early 1990s when drug cartels bombed government buildings and killed a presidential candidate, judges and politicians.

Torre's killing is the first big political assassination in Mexico since the 1994 murders of PRI presidential candidate Luis Donaldo Colosio and prominent PRI leader Jose Francisco Ruiz Massieu, as the country grappled with its slow transition to democracy after decades of one-party rule.

It came after the abduction last month of senior ruling party politician Diego Fernandez de Cevallos, who has yet to be released by his captors, sent shivers through the country.

THREAT TO INSTITUTIONS

Monday's news hit the peso, leaving it 0.62 percent weaker at 12.7315 per dollar by late afternoon. "It's the political level it is reaching that's the worry," said Scotia Capital currency strategist Daniela Blancas.

Calderon said the killing showed drug cartel violence was a threat that knew no limits and was deeply damaging to Mexican security and institutions. "We must close ranks to confront it and prevent more actions like the cowardly assassination that has shocked the country today," he said.

Torre, who was married with three children, had 67 percent support in Tamaulipas versus 25 percent for his PAN rival, according to a May survey by pollster Consulta Mitofsky.

A Tamaulipas government official who declined to be named blamed his killing on the fight for power between the powerful Gulf cartel and its former armed wing, the Zetas, who are warring over lucrative smuggling routes into Texas.

A local police official told Reuters that 16 hooded gunmen ambushed Torre as he was traveling to the town of Valle Hermoso, near the U.S. border. TV images showed campaign trucks with shattered windows near the victims' bodies.

Valle Hermoso was the scene of another suspected drug gang attack last month when a mayoral candidate for the ruling National Action Party, or PAN, was killed.

"The change, the new thing we're seeing in Mexico is how the cartels are pushing into the political environment," said independent Mexican security analyst Alberto Islas.

"It's an act aimed at sending a message ... to say we are the ones in charge here ... This area is controlled by the Gulf cartel or the Zetas. Now we are seeing their dispute reaching the level of getting rid of gubernatorial candidates."

To date, Mexico's financial securities have been largely unaffected by the raging drug war, although some foreign companies are reconsidering investments in the violent north.

Barclays Capital analyst Jimena Zuniga said Monday's murder did not change her assessment of Mexico's security situation as "no regime threat" but said it was a yellow flag that was harder for markets to dismiss than previous killings.

"Although we do not expect any resultant escalation of violence to produce a lasting repricing of Mexico's risky assets ... headline risk could keep them under pressure and in particular limit the peso's upside potential," she said.

(Reporting by Cyntia Barrera Diaz, Mica Rosenberg, Sean Mattson, Miguel Angel Guiterrez, Michael O'Boyle and Robin Emmott; editing by Anthony Boadle)