Hurricane Paul picks up power, heads for Mexico

MEXICO CITY, Oct 23 (Reuters) Hurricane Paul strengthened on today as it swept across the Pacific Ocean toward a beach resort on Mexico's Baja California peninsula and key farming areas on the mainland barely recovering from a battering last month.

The Miami-based National Hurricane Center said the hurricane, a category 2 on a five-step scale, was gaining force. It could become a powerful category 3 storm later in the day, capable of blowing down large trees and destroying mobile homes.

Paul whipped up winds of nearly 165 kph and was located 710 km south of Cabo San Lucas, one of two towns that together make up Los Cabos, an exclusive resort popular with US golfers and other tourists.

Forecasters said Paul would pass near the resort sometime on stet before crashing into the Mexican mainland.

The Mexican government issued a hurricane watch for the southern tip of Baja California, which extends south from the US state of California.

Vacationers in Los Cabos, mostly US visitors, were concerned but there were no evacuations.

''The guests are asking about it but for now we're telling them we don't have any solid information and that the weather is very unpredictable,'' said Patricia Salbana, a receptionist at the Fiesta Americana Grand hotel in Los Cabos.

A hurricane watch was in force for the tip of the peninsula, meaning the storm could strike there within 36 hours. It was moving northward slowly.

''It might change direction,'' said Omar Muro, a spokesman at the nearby InterContinental hotel. ''We don't want to give guests a false alarm.'' The state of Sinaloa, which took a hit from Hurricane Lane in September, was in the path of the latest storm. Lane missed Los Cabos before crashing into Sinaloa on Mexico's Pacific Coast, killing three people.

Paul could confound central bank economists in Mexico City if it destroys crops in Sinaloa, creating food shortages and pushing up inflation.

Lane devastated key tomato crops in Sinaloa, helping push September's inflation to its highest monthly rate in six years.

''If it hit there, inflation could continue to be impacted,'' said Mario Correa, an economist at Scotiabank Inverlat.

Farmers in the state were keeping a close eye on the storm.

''Obviously people are really alarmed,'' said Manuel Ortiz, a meteorologist at the Confederation of Agricultural Associations of Sinaloa state.

REUTERS PDS RAI0107