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Supporters of Hector Yunes, a candidate for governor of Veracruz from Institutional Revolutionary Party (PRI), react after regional elections at party headquarters in Xalapa, in Veracruz state, Mexico, June 5, 2016. REUTERS/Oscar Martinez

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By Dave Graham

XALAPA, Mexico (Reuters) - Mexico's ruling party looked set to lose control of several bastions in Sunday's regional elections, dealing a heavy blow to President Enrique Pena Nieto for failing to crack down on corruption and gang violence.

The rout would help set the tone for the next presidential election in 2018, underscoring deep discontent over graft scandals and a sluggish economy, and throwing the contest open to contenders from both the left and right.

Early results from gubernatorial races in 12 of Mexico's 31 states showed Pena Nieto's ruling Institutional Revolutionary Party, or PRI, heading for defeat in seven of them, a result far worse than most polls had forecast.

Projected losses included two oil-rich strongholds in the Gulf of Mexico, Veracruz and neighbouring Tamaulipas, both of which have been plagued by gang violence for years, as well as Quintana Roo, home to Mexico's top tourist destination Cancun. All three have been run by the PRI for over eight decades.

The opposition centre-right National Action Party (PAN) looked poised to be the main beneficiary, taking an early lead in six states, several of them in alliance with the centre-left Party of the Democratic Revolution (PRD).

"We've broken the authoritarian monopoly the PRI has held for more than 86 years," a buoyant PAN leader Ricardo Anaya told cheering supporters after polls closed on Sunday.

In a televised debate, Anaya then castigated the PRI for a surge in kidnappings in Tamaulipas and noted that two of the party's former state governors are wanted by U.S. prosecutors for alleged ties to drug gangs. One of the men, Eugenio Hernandez, was pictured freely casting his vote on Sunday.

The PRI held nine of the 12 states going into the vote, of which the most populous is Veracruz, a region dominated by just a few families since the PRI took control in the decades after Mexico's 1910 revolution.

Initial results showed the PRI behind in Veracruz, with the party of two-time presidential runner-up Andres Manuel Lopez Obrador and the PAN-PRD contender jostling for first place.

A win in Veracruz by Cuitlahuac Garcia of Lopez Obrador's new leftist National Regeneration Movement, or Morena, would give the former Mexico City mayor a strong platform to make another run for the presidency in two years time.

It could also unsettle investors given that Lopez Obrador has vowed to undo Pena Nieto's signature reform, a historic opening of the oil industry to private investors.

Veracruz had become a liability for Pena Nieto after years of gang warfare, mounting debts and allegations of corruption.

There were reports of violence and fraud in the state on Sunday, and both opposition campaigns said the PRI had tried to intimidate their supporters and rig the vote.

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

Duarte, who could not seek re-election, has denied wrongdoing. But his six-year term became notorious for the killings of journalists and violent crime.

Few voters in Veracruz state capital Xalapa sought to defend him.

"There's no money, there's no jobs, there's no security for our children," said local teacher Ruth Morales, 52. "This government has only benefited a handful of people."

(Additional reporting by Natalie Schachar, and Frank Jack Daniel; Editing by Simon Gardner and Dominic Evans)

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