Reuters International

A man cast his ballot during regional elections in Ciudad Juarez, Mexico, June 5, 2016. REUTERS/Jose Luis Gonzalez

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By Dave Graham

XALAPA, Mexico (Reuters) - Mexico's ruling party looked primed for a significant setback in regional elections on Sunday, losing ground to the opposition due to widespread anger over corruption and gang violence in a race that may set the tone for a 2018 presidential vote.

Early tallies showed President Enrique Pena Nieto's ruling Institutional Revolutionary Party, or PRI, could lose control of several states in 12 gubernatorial contests, including two of its historic bastions in the Gulf of Mexico.

The elections pose a major test for PRI hopes of retaining the presidency in 2018 in the face of deep discontent over graft scandals and a sluggish economy that have made a fiery leftist former mayor of Mexico City looking like the man to beat.

The PRI held nine of the 12 states heading into Sunday's vote, but early results showed it may lose some states it has run for the past 80 years and win just four of the 12. The conservative National Action Party (PAN) looked set to be the big winner, with an early lead in six states.

The biggest prize on offer is oil-rich Veracruz, the third most-populous state, which has been long dominated by a few families since the PRI took control in the decades following Mexico's 1910 revolution.

Early results showed the party of two-time presidential runner-up Andres Manuel Lopez Obrador leading in the state.

A win by Cuitlahuac Garcia of the new leftist National Regeneration Movement, or Morena party, would give Lopez Obrador a strong platform for a run for the presidency in 2018.

Turf wars between gangs, mounting debts and allegations of corruption turned Veracruz into a liability for Pena Nieto.

There were scattered reports of violence and fraud in the state, a common complaint in Mexican elections, where party campaigners often go door to door with gifts and incentives to entice poorer voters in particular to back their candidates.

A government agency charged with investigating electoral crimes said it had received hundreds of complaints by telephone and email. The opposition campaigns in Veracruz both accused the PRI of trying to intimidate their supporters and rig the vote.

CORRUPTION "REALLY BAD"

The PAN said one of its mayors in Acajete, Veracruz, had his home attacked. Media showed the building on fire.

"We're seeing a climate of persecution against the opposition in Veracruz," PAN spokesman Fernando Rodriguez said. "Veracruz has a very authoritarian, very violent, very repressive governor and today ... they're still showing that."

Accused by critics of presiding over rampant impunity and misuse of public funds, Veracruz Governor Javier Duarte has become such a lightning rod for anger that PRI candidate Hector Yunes has said he was "embarrassed" to be in the same party.

Duarte, who cannot seek re-election, has denied wrongdoing.

Since Duarte took office, Veracruz's debt has more than doubled to 46 billion pesos ($2.5 billion) according to official data, although other estimates put the figure far higher.

The state has also become notorious for violent crime and the killing of journalists.

Pedro Rivera, a 49-year-old entrepreneur in Xalapa backing the PAN, said many of his friends had been robbed or kidnapped and that graft was worse than ever.

"There's always been a lot of corruption, but this time's it's been really bad," he said.

(Additional reporting by Noe Torres, Liz Diaz, Natalie Schachar, Anna Yukhananov and Frank Jack Daniel; Editing by Simon Gardner, Bill Rigby and Simon Cameron-Moore)

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