UPDATE 1-Mexico raises 2010 growth forecast to 4.5 pct

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MEXICO CITY, Sept 8 (Reuters) - Mexican domestic demand should improve through the year leading the economy to grow by 4.5 percent in 2010, up from a previous forecast of 4.1 percent growth, the finance ministry said on Wednesday.

President Felipe Calderon is due to present his 2011 budget proposal to Congress on Wednesday as he offers a spending plan he hopes will help lift Mexico from a deep economic downturn while battling violent drug gangs and social ills.

Calderon's government has said it hopes to narrow the federal deficit in the next budget but the plan is not expected to contain ambitious new taxes or radical cuts in spending.

The Mexican economy should grow by 3.8 percent next year, the finance minister said on Tuesday, in part due to weak demand in the United States.

Roughly 80 percent of Mexican exports are absorbed by the United States and so the fate of the country's economy is closely tied to that of its northern neighbor.

"We expect growth to moderate in the second half of 2010 and 2011 with growth depending more on the development of the internal market," the Finance Minister Ernesto Cordero said in an online forum with voters. (Reporting by Patrick Rucker; Editing by James Dalgleish)