UPDATE 1-Vote leaves Mexico reforms in opposition's hands
(For a TAKE A LOOK on Mexico, click [ID:nN25302940])
* PRI may control nearly half of seats in lower house
* Voters tired of recession and crime
* Peso down against the dollar (Adds quotes, detail, background)
MEXICO CITY, July 6 (Reuters) - A worse-than-expected congressional election defeat for Mexico's ruling conservatives has left President Felipe Calderon's economic reform agenda firmly in the hands of the opposition.
Voters tired of a recession and crime wave handed victory at Sunday's mid-term vote to the Institutional Revolutionary Party, or PRI, which has flourished in opposition since it was ousted in 2000 from seven decades of one-party rule.
Calderon's National Action Party, or PAN, moved Mexico into a new era of democracy with the victory over the PRI nine years ago but it has failed to create the jobs it promised, leaving millions to cross the U.S. border illegally in search of work.
Mexicans have praised Calderon's war on drug gangs, but are worried by a surge in brutal cartel murders and kidnappings, and Calderon's defeat now risks leaving him a lame duck.
A determined former lawyer, Calderon wants economic reforms like tax and energy overhauls to be part of his legacy.
Bumped down to second place in Congress, his party will only achieve a tax reform seen crucial for Mexico's credit ratings if the PRI backs it.
The PRI has left behind its authoritarian past, and some investors hope it will end its old habit of stalling reforms as it eyes 2012 presidential elections and will instead favor laws to dynamize the sputtering economy.
PRI leader Beatriz Paredes said on Monday the party has a "very clear" agenda of the need for deep economic changes and solutions to the economic crisis.
Her comments helped pare overnight losses in the peso, and Barclays Capital analysts called them "encouraging".
Other analysts took the remarks with a pinch of salt, noting the party must avoid irking its old-school support base. Its intentions regarding a tax reform may not become fully clear until a proposal is voted on in September.
"The PRI is clearly a front-runner to win in 2012, so they have an incentive to make sure the economy is in good shape," said Damian Fraser, head of Latin American research at UBS. Continued...
