UPDATE 4-Mexico ruling party losing in Congress election

(For a TAKE A LOOK on Mexico, click [nN25302940])

* Early results show Calderon's party behind

* Economic worries turn voters against government

* Opposition PRI party ahead
(Adds early official results)

By Alistair Bell

MEXICO CITY, July 5 (Reuters) - Mexican President Felipe
Calderon's party was heading for defeat in mid-term
congressional elections on Sunday, frustrating his plans to
implement reforms to heal the ailing economy.

Calderon's National Action Party, or PAN, was about 8
percentage points behind the opposition Institutional
Revolutionary Party, or PRI, after results from almost 15
percent of polling stations had been counted.

The poor state of Mexico's economy, which is in deep
recession due to the downturn in the United States next door,
turned voters against Calderon, a dour conservative.

"Investment and exports are falling. It's a mess and it
will be a long time before we recover," university professor
Enrique Serrano, 51, said as he left a Mexico City polling
station.

Calderon wants to overhaul the energy sector to allow more
private investment in the search for oil in the Gulf of Mexico.
He also seeks to reform the tax system and labor laws.

But if Sunday's results hold, he will have to negotiate
with the centrist PRI to push reforms through Congress.

The PRI has already watered down reform attempts by
Calderon, who has not had a majority in Congress since he
became president in a tight election in 2006.

Earlier, media exit polls had given the PRI an advantage of
11 points over the PAN, which has governed Mexico since the end
of seven uninterrupted decades of PRI rule in 2000.

ECONOMIC FALLOUT

The election should not affect Calderon's war against drug
cartels. More than 12,300 people have died since he dispatched
the army to battle drug gangs three years ago but Congress has
not played a major role in the fight.

The exit polls suggested the PAN party would drop from
first place in the lower house of Congress to second. The
election appeared to be a victory for the PRI, which ruled
Mexico for 71 years until President Vicente Fox ousted it in
elections in 2000.

The PRI had a reputation for ruling with a mixture of
authoritarianism and corruption but Calderon's party has failed
to deliver on promises of jobs and low crime.

"We weren't as bad with the PRI as we are now. Poverty and
crime have increased," said Pamela Gonzalez, 25, a student of
business administration.

Calderon is personally popular with voters but Mexico has
lost hundreds of thousands of jobs this year and the economy is
likely to shrink more than 6 percent.

Mexico's tax take is one of the lowest in Latin America and
foreign investors want to see a fiscal overhaul. Decades of
sluggish economic growth have kept most Mexicans poor and
spurred millions to cross the U.S. border in search of work.

Mexican oil output has dropped to its lowest in 16 years,
eroding a pillar of public finance.

But Congress cannot agree on a major energy reform due in
part to Mexico's long-held reluctance to let private companies
play a major role in its oil industry, nationalized in 1938.

"This sparring and this division has hurt the people,"
Salvador Lee, a civil engineer, said at a polling station.
"Countries that were more backward than us in every aspect are
now ahead of us."
(Additional reporting by Michael O'Boyle; Editing by John
O'Callaghan)