By Andrew Beatty

PANAMA CITY, July 5 (Reuters) - Eighty-three people have died in Panama after taking medicines contaminated with a Chinese-made toxin last year and the death toll is expected to rise, a senior prosecutor said on Thursday.

Panama is investigating the illness of 540 people suspected of falling sick after using cough syrup or one of three other medicines found last year to be contaminated with diethylene glycol, a substance normally used in anti-freeze.

"As of today we have 112 cases that have tested positive. There are 83 dead and 29 still alive," said Dimas Guevara, the special prosecutor leading the investigation into how the medicines became adulterated.

There are growing concerns in the United States and Latin America over the safety of Chinese products after a series of recalls and bans on items ranging from children's toys to toothpaste.

Panama pulled the contaminated medicines from circulation in October, but confirmed deaths from contamination have risen steadily as more sick people have died and investigators have exhumed the bodies of possible victims for testing.

"We are still waiting for more than 200 clinical tests," Guevara told Reuters. "The number of dead is going to rise, and the number of those affected is going to rise."

He said he would investigate the deaths of another 387 people possibly related to the case, adding that seven new cases had been brought to his attention on Thursday.

Local media reported that a 60-year-old man who died last week was the latest confirmed victim. He fell ill in November after taking contaminated medicine.

Guevara's investigation began in October amid suspicion that Panamanian officials may have collaborated with Chinese suppliers to pass the diethylene glycol off as glycerin, a commonly used sweetener.

Since then, three people have been sentenced for their role in the case and another 13 are under investigation, including Health Minister Camilo Alleyne.

Amid allegations of government complicity, President Martin Torrijos' administration announced in March that $6 million in compensation would be given to victims and their families. The first payments were made on Monday.

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