UPDATE 1-Mexico senators to meet on tax bill impasse

(Updates with peso, analyst comment)

MEXICO CITY, Oct 26 (Reuters) - Mexican senators will meet on Monday in an effort to overcome an impasse over President Felipe Calderon's proposal to raise taxes to reduce dependence on waning oil revenues in the 2010 budget.

The main opposition Institutional Revolutionary Party, or PRI, is divided over whether to support a measure to raise Mexico's value-added tax, or VAT, one percentage point to 16 percent.

PRI senators were planning to meet on Monday afternoon to discuss the impasse, while the Senate finance committee was scheduled to meet later in the day.

Enough PRI lawmakers backed the measure, proposed by Calderon's Finance Ministry, for it to pass in a lower house vote last week.

But the party's members in the Senate are threatening to reject the proposal, which could make a downgrade of Mexico's debt rating more likely.

"The (peso) has been an outperformer in recent weeks but we believe this outperformance is highly at risk ... with abruptly rising risks of a double (Fitch and S&P's) credit rating downgrade over coming weeks," RBC Capital Markets warned in a research note.

Mexico's peso sank on Monday as investors shunned riskier markets generally and grew concerned about the fiscal debate.

By last week, the peso had gained around 7 percent so far this month on hopes lawmakers would cobble together a package of tax reforms that could stave off a downgrade of the country's debt.

The peso MXN=MEX01 lost as much as 1.62 percent to 13.29 per U.S. dollar in early afternoon trading, bringing its losses to 3 percent since word of dissent in the Senate emerged late last week.

PRI party leaders met with lawmakers and governors from the party over the weekend, but could not strike a deal on the measure. Some PRI members worry that backing a tax hike could hurt them in future elections. (For scenarios on the debate's outcome, please see: [ID:nN26491560] For facts about the tax measures under debate, please see: [ID:nN25154478]) (Reporting by Jason Lange and Miguel Angel Gutierrez; Editing by James Dalgleish)