Judicial strikes grow in Mexico over reform pushing currency lower

By Diego Oré and Raul Cortes

MEXICO CITY (Reuters) - Judges and magistrates joined a strike on Wednesday as protests against a judicial reform pushed by outgoing President Andres Manuel Lopez Obrador gained momentum, weighing on markets with the peso falling over 2%.

The controversial reform, by which judges - including Supreme Court justices - would be elected by popular vote, is a top priority for Lopez Obrador, who argues it will help combat impunity and corruption.

But markets have been on edge since the ruling Morena party won an even greater chunk of Congressional seats than forecast in a June national election, effectively guaranteeing them the ability to pass constitutional reforms when the new Congress takes office next month.

"We are heading towards an unprecedented constitutional crisis, a crisis that, if not stopped, will leave deep scars in our social fabric," Juana Fuentes, president of the union that brings together magistrates and judges, said on Wednesday.

Fuentes said the strike would continue until the proposal was scrapped, but that the judiciary would still handle urgent cases.

Opponents of the reform say the popular election of judges would end merit-based career paths and make the judiciary even more vulnerable to outside influence, such as from political parties or even organized crime groups.

Markets are worried the changes would erode key checks and balances on presidential power, damage the business climate in Latin America's second-largest economy, and lead to trade disputes under the North American trade agreement, USMCA.

An altered proposal, which would see the initial election of judges staggered into two parts, appears to have done little to calm concerns.

On Tuesday, investment bank Morgan Stanley downgraded Mexico to "underweight" - an effective sell recommendation - saying the proposed judicial reform "should increase risk" and could hit investment. "That's a problem as nearshoring is reaching key bottlenecks," the bank said in a note.

The Mexican peso was down more than 2% in afternoon trade and the Mexican stock market down 0.6%.

Lopez Obrador criticized the strike and said it would not change his mind about the reform.

"Nothing is happening with their movement, it doesn't matter, because they don't serve the population," he said during a regular morning press conference.

(Reporting by Diego Ore and Raul Cortes; Writing by Sarah Kinosian; Editing by Sandra Maler)