Mexico drug war hangs over key tourist season

* Fears growing in U.S. over risks from Mexico's drug war

* Mexico counting on tourism to cushion economic slump

CANCUN, Mexico, March 5 (Reuters) - Despite warnings about drug gang violence, U.S. college students are starting their annual "spring break" party on Mexican beaches, bringing dollars that will help cushion the economic slump in Mexico.

With the battered peso making Mexico a cheap destination this year, the government is praying for a steady stream of visitors to its beach resorts and quaint colonial towns, despite the slumping global economy. Tourist visits to Mexico rose 6 percent last year to 22.6 million.

Some in the industry worry, however, that a surge in drug cartel killings, which has sparked travel warnings from the U.S. and Canadian governments in recent days, could scare off foreigners just as Mexico needs their cash most.

Fear in the United States is growing over a drug war that killed more than 6,000 people in Mexico last year.

In Cancun -- a hedonistic Caribbean strip of hotels and discos popular with U.S. college students on their spring hiatus -- there are troops at the airport and military checkpoints along the coast road.

The vast majority of drug killings happen far away from beach resorts, although a former army general was brutally murdered just outside Cancun last month after he was appointed to form an elite crime-fighting police unit.

A couple from Baltimore was thrilled to find a cheap Cancun package online until friends warned them about drug violence.

"When we told people we were going to Cancun they told us to watch out," said Ed Connolly, 22, whose mother told him she had heard stories of tourists being kidnapped in the resort.

Hotels in Cancun say they are booked solid for the spring.

"So far, everything is going fine," said Richard Sykes, who owns El Pez Vela restaurant in Playa del Carmen, a resort near Cancun. "Now we have to wait and see what happens."

But in the central colonial town of San Miguel de Allende, guest house manager Susan Cordelli said media coverage of the drug war could be a factor behind a sharp drop in bookings.

"They are radiating with the bad news, a vibe that's going through the United States and the rest of the world because my European clientele has definitely dropped off," she said.


Mexico needs tourism to hold up as migrant remittances and exports of oil and manufactured goods decline.

The government is eyeing a 2.5 percent rise in tourist numbers this year to soften the blow as Mexico follows the United States into a recession, but Finance Minister Agustin Carstens was gloomier this week, saying financial woes would cause some Americans to cancel their vacations.

Credit Suisse analyst Vanessa Quiroga sees a 5 percent drop in the number of foreigners flying to Mexico this year.

Mexico's high tourist season runs from March, when spring breakers land, to late autumn, from Pacific resorts and Mayan ruins in the jungle to eco-chic Caribbean bungalows.

Mexico's drug cartels rarely target civilians, and less so foreigners, but escalating turf wars sparked by an army crackdown on cartels have marred the country's image.

The U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives has cautioned spring breakers to avoid Mexico's northern border towns and leave guns at home.

The head of Mexico's tourism development office has played down the dangers. "They point to us as if we were Beirut or the Gaza Strip and it is not so. There has never been a shootout in a tourist zone," Fonatur chief Miguel Gomez Mont told a congressional testimony last month.

Many see Mexico faring better than other destinations as a drop in the peso allows cut-price dollar rates. "The good news for Mexico is they are outperforming everyone else," said Tim Mullen, marketing vice president at U.S. firm Apple Vacations.

Americans are noticing the lure of a cheap holiday as their dollars buy 15 pesos each, up from 11 a year ago.

"Europe is really expensive now," said Brent Spinacolo, a visitor from Seattle. "Coming here now is a lot cheaper." (Additional reporting by Jose Cortazar in Cancun and Geraldine Downer in San Miguel de Allende; Editing by Catherine Bremer and Eric Beech)