Wires

WRAPUP 5-Trump sees 'good chance' of Mexico migration deal as clock ticks down to tariffs

Makini Brice and Anthony Esposito

down to tariffs@ (Adds context on agricultural trade, comments on weekend outlook, migration talks details)

* U.S.-Mexico negotiators in third day of talks on migration issue

* U.S. edges closer to imposing tariffs on Mexican goods

* Tariffs of 5% set to go into effect Monday if no deal agreed

WASHINGTON/MEXICO CITY, June 7 (Reuters) - U.S. President Donald Trump said on Friday there was a "good chance" that the United States would be able to reach a deal with Mexico over a surge of migrants on their common border, although his administration was still pushing ahead with a plan to slap import tariffs on all Mexican goods next week.

Trump has threatened to impose the levies starting at 5% on June 10 if the Mexican government does not agree to do more to tackle an increase in mostly Central American migrants crossing Mexico to enter the United States.

U.S. border officers apprehended more than 132,000 people crossing from Mexico in May, the highest monthly level since 2006.

The two sides started a third day of talks in Washington on Friday to reach a deal.

"If we are able to make the deal with Mexico, & there is a good chance that we will, they will begin purchasing Farm & Agricultural products at very high levels, starting immediately," Trump said in tweet. "If we are unable to make the deal, Mexico will begin paying Tariffs at the 5% level on Monday!"

Officials have said the talks have centered on migration rather than trade. However, U.S. agricultural exports are expected to be among those hardest hit by any retaliatory tariffs imposed by Mexico, which is the top importer of U.S. corn, wheat, pork and dairy by volume.

Mexican President Andres Manuel Lopez Obrador said it was a mistake for the United States to link migration with trade.

Mexico's peso, which has been battered by fears of a trade war with its biggest market, strengthened more than 0.5% against the dollar after Trump's comments.

Marc Short, chief of staff to U.S. Vice President Mike Pence, said earlier on Friday that the United States was moving ahead with a legal notification of the tariffs on Mexican goods. "You should anticipate that happening today," he said at the White House.

The notification could still be turned off over the weekend by the president, Short said. Trump is returning to Washington from a European trip on Friday.

"The president's going to ... look at a bunch of options, and weigh all the options over the weekend," outgoing White House economic adviser Kevin Hassett told CNBC. "People feel like they're going to be presenting the president when he gets back with some positive choices."

MEXICAN OPTIMISM

Trump has warned that the initial tariffs on Mexico will be incrementally increased each month up to 25% if a migration deal fails to materialize, however.

Mexico is scrambling to avoid such a scenario.

"It's a good sign that talks have not broken down," Lopez Obrador told reporters in Mexico City. "There is dialogue and an agreement can be reached. I'm optimistic we can achieve that."

The Mexican president is due to make a statement on Saturday at a meeting of politicians, businesses and unions in the border city of Tijuana.

Mexico has prepared a list of possible retaliatory tariffs targeting U.S. products from agricultural and industrial states regarded as Trump's electoral base, a tactic China has also used with an eye toward the Republican president's 2020 re-election bid.

Such a move would leave the United States fighting trade wars with two of its three largest trading partners and further unnerve financial markets already nervous about a global economic slowdown.

The United States slapped up to 25% tariffs on $200 billion in Chinese imports last month, prompting Beijing to levy its own tariffs on $60 billion in American goods. Trump said on Thursday he would decide later this month whether to hit Beijing with tariffs on an additional list of $300 billion in Chinese goods.

The looming U.S. tariffs have caused businesses in Mexico to scramble to get their products into the United States.

"It's very chaotic. We might be able to put up with 5% for a little bit, 10% maybe," said Guillermo Valencia, president of Valencia International, a customs broker in Nogales, Arizona. "There are very few businesses that can take a 25% increase in costs and stay alive."

Economists say the trade disputes could damage key supply lines and pinch consumers at a time when the global economic expansion that followed the 2008 financial crisis has started to sour and the risk of recession has risen.

Credit ratings agency Fitch downgraded Mexico's sovereign debt rating on Wednesday, citing the trade tensions among other risks, while Moody's lowered its outlook to negative.

Even the United States, one of the more solid performers on the economic stage, would not be immune to the downdraft.

The U.S. Labor Department reported on Friday that job growth slowed sharply in May and wages rose less than expected, raising fears that a loss of momentum in economic activity could be spreading to the American labor market.

U.S. business groups are generally opposed to the tariffs, warning they will raise costs for companies and lead to higher prices for American consumers. Trump's fellow Republicans also are not keen on the prospect of a two-front trade war.

But Trump is eager to show progress on his 2016 campaign pledges to take a hard line on immigration and rebalance global trade in favor of the United States as part of his "America First" agenda.

On Thursday, Mexico said it had offered to send 6,000 national guard troops to its border with Guatemala to secure the crossing. Officials at the talks have indicated that protocols around sending asylum seekers to Mexico or other third countries while their U.S. claims are processed are also part of the mix.

(Reporting by Susan Heavey, Makini Brice and Doina Chiacu in Washington, Lisa Baertlein in Los Angeles, Anthony Esposito in Mexico City, Caroline Stauffer in Chicago and Steve Holland in Shannon, Ireland Writing by Paul Simao and Rosalba O'Brien Editing by Susan Thomas and Grant McCool)