UPDATE 1-Fitch warns on Mexican mortgage debt issues

(Adds background on Mexico's debt market)

MEXICO CITY, Nov 3 (Reuters) - Fitch Ratings placed four Mexican mortgage-backed bonds issued by small non-bank lenders on ratings watch negative on Monday, the latest sign that fallout from the world credit debacle is seeping into the country's financial system.

Fitch warned the mortgages that make up the debt, issued by Credito y Casa and Su Casita, showed growing signs of past-due payment problems.

The U.S. economy is in its worst crisis since the Great Depression as banks saddled with dubious subprime mortgage loans struggle to stay afloat.

Mexico's banks have weathered the global financial crisis relatively well, partly because they have avoided risky lending niches, sticking instead to traditional businesses.

But a likely steep economic slowdown in Mexico, which depends on the United States to buy 80 percent of its exports, is expected to lead to a jump in consumer and business loan defaults.

Mexican banks' non-performing loans rose to 3.03 percent of their portfolios in September from 2.82 percent in June, largely because of consumer lending defaults.

Also on Monday, Fitch ratified its ratings on 34 other mortgage-backed Mexican debt issues. Ratings watch negative covers Fitch's short-term view of what might happen in the next three to six months.

Mexico's banks, led by international players like Citigroup (C.N), Santander (SAN.MC) and HSBC (HSBA.L), have said they plan to tone down lending growth to reduce their non-performing loans and minimize fallout from the global credit crunch.

Only in the past few years have banks and specialized lenders in Mexico begun selling mortgage-backed debt.

The market for those issues remains small and has yet to attract significant interest from big foreign investment funds. Most of Mexico's mortgage-backed debt is held by local pension funds and insurance companies.

The government took several steps in October to defend itself from the credit crisis after rising risk aversion sent the peso MEX01 MXN= into its worst nosedive since Mexico's Tequila Crisis in the 1990s.

The central bank launched a daily dollar auction to support the peso and the government has offered partial guarantees on the commercial paper as well as bond buybacks and interest rate swaps to ensure debt markets stay liquid. (Reporting by Noel Randewich; editing by Carol Bishopric)