UPDATE 1-U.S. lawmakers warn against Mexico sugar import restrictions

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NEW YORK, July 29 (Reuters) - A bipartisan group of U.S. lawmakers warned on Tuesday that restricting Mexican sugar imports would inflate food prices and threaten U.S. food manufacturers, the latest sign that pressure is growing on Washington to avoid trade barriers.

In a letter seen by Reuters, 17 U.S. senators - including Arizona Republican John McCain and California Democrat Diane Feinstein - on Tuesday urged the Commerce Department against striking a deal, known as a suspension agreement, that would impose quotas on Mexican sugar imports.

"Such a suspension agreement will violate our nation's commitment to free and open trade with Mexico, threaten the viability of American food manufacturers and raise food prices for American families," the lawmakers' letter said.

Senators Jeanne Shaheen, a New Hampshire Democrat, and Pat Toomey, Republican from Pennsylvania, have led the effort to pressure for reform of the U.S. sugar program.

As recently as June, Shaheen led a move to cap sugar loan spending after attempts to reform the policy during farm bill negotiations failed last year.

U.S. food manufacturers and commercial users of sugar sent a similar letter earlier this month, citing rumors that the government was negotiating a trade deal with Mexico to end a months-long dispute over imports of the sweetener.

The move comes just weeks before the U.S. Commerce Department is due to decide whether to impose countervailing duties on Mexican imports following an investigation into allegations that the country's mills are dumping subsidized sweetener in the domestic market.

In May, U.S. Agriculture Secretary Thomas Vilsack said he would encourage a negotiated agreement. Such a deal could set a ceiling on Mexican sugar imports, which are currently unrestricted under NAFTA.

The letter was addressed to Commerce Secretary Penny Pritzker, Vilsack, and U.S. Trade Representative Michael Froman.

(Reporting by Josephine Mason, editing by G Crosse)