NEW COLOMBIA PEACE TALKS AS US WARNS ON REBEL DRUGS

BOGOTA, Colombia (Reuters) - Colombia's largest Marxist rebel force is set
to meet the government for the latest round of peace talks this week amid
warnings from the United States that Washington is ready to help fight the
guerrillas to stop them trafficking drugs.

A recent U.S. report conceded Washington was losing the drug war as cocaine
and heroin production spirals in rebel-held territories, allowing the
insurgents to earn $600 million a year to fund their long-running uprising.
The conflict in Colombia has claimed 35,000 lives in the last 10 years
alone.

Political analysts have for some time accused Washington of covertly
intervening in Colombia's three-decade-old civil conflict by blurring the
line between counternarcotics and anti-guerrilla operations.

But the June report by the U.S. government General Accounting Office (GAO)
and comments by a top military official offered some of the clearest
indications yet that the United States is already taking a hand in
counterinsurgency and is preparing to step up that involvement.

The rebels admit ``taxing'' the drug trade but deny trafficking. They say
recent U.S. allegations are aimed at scuppering the peace process and
gearing up for intervention.

``Just as we are engaged in talks with the government...the threats from the
Pentagon, CIA, DEA and the hawks of war in the United States are all the
more evident and damaging,'' said Marco Leon Calarca, a spokesman for the
Revolutionary Armed Forces of Colombia (FARC), the oldest and largest
guerrilla army in the Americas.

FARC commanders are due to meet a team of government negotiators and social
leaders Wednesday for the start of full-blown negotiations -- the latest
round of a peace process than began in January.

The FARC has rejected calls for a cease-fire and political violence has even
surged over the last three months. The rebels say talks must go on in the
midst of war.

Wednesday's talks are set to take place in the town of La Uribe, a former
stronghold of the FARC leadership inside a Switzerland-sized zone of the
southeast that has been cleared of government troops.

While Washington has welcomed peace talks it is adamant that action must be
taken to smash what it sees as an alliance between guerrilla forces and drug
lords.

The GAO said Colombian cocaine output could rise by as much as 50 percent in
the next two years and that Colombia was now the main supplier of high-grade
heroin to the East Coast.

``Recent offensives by the insurgents...suggest Colombian security forces
will be unable to conduct effective anti-drug operations in regions where
guerrilla forces dominate,'' it stated. In an effort to combat rising
production, the GAO said U.S. officials were now ``routinely sharing''
intelligence on rebel movements.

This year the United States funneled a record $280 million into Colombia to
wage a war on drugs -- making this Andean nation the third largest recipient
of U.S. aid worldwide. The Department of Defense is also taking a lead role
in helping the Colombian army set up a 950-man anti-drug battalion.

And the United States has put out even stronger signals.

Gen. Charles Wilhelm, commander of the Miami-based Southern Command, has
said the rebels are endangering regional stability and warned the Pentagon
could intervene unilaterally, particularly in Panama, if the rebels
persisted in making cross border raids.

Since President Andres Pastrana formally launched the peace process, FARC
warlords have repeatedly stated they have nothing to negotiate but insist on
sweeping agrarian reform, radical wealth distribution and socialist economic
policies.

Earlier this month FARC fighters killed 35 soldiers in clashes in northern
Colombia.

The smaller National Liberation Army (ELN), meanwhile, is still holding more
than 54 civilian hostages, from a plane hijack in April and a raid on a
church during a mass in May.