By Terry Wade and Teresa Cespedes

LIMA, Dec 5 (Reuters) - Peru's prime minister, a prominent leftist who was chosen to help calm volatile social conflicts, said on Friday the government will increase spending to fight poverty next year even as the economy slows.

Since taking office in October, Yehude Simon has struggled to dissuade protesters from taking to the streets in a country where poverty still hovers near 40 percent despite seven years of fast economic growth.

Social conflicts have more than doubled in the past year to 195, the government's rights ombudsman says, as Peruvians demand a bigger share of the country's economic pie, reject hydroelectric dams and mining projects over environmental concerns, and push for better access to water and roads.

Protests may intensify next year as the economy slows and prices for Peru's chief export -- minerals -- plummet. Faced with fallout from the global financial crisis, Simon said the government will boost spending and triple housing outlays.

The government has said it could disburse $3 billion for the stimulus package, which would aim for economic growth of 7 percent after a surge of about 9 percent this year.

"At a time like this, reducing public investment would be a crime," he told the foreign press club in Lima. "Forgotten sectors of society need to feel the government is including them."

Because protests in the provinces often turn violent, with police being taken hostage or pelted with rocks, Simon has spent valuable time negotiating truces with unions or opposition groups, instead of working on policy.

Critics have said the centrist government of President Alan Garcia frequently treats protesters like criminals, and has been slow to respond to their demands with concrete results.

Since his election in 2006, Garcia has lured billions in foreign investment to Peru but struggled to spread the fruits of the economic boom to the poor.

Simon denied the government has been heavy-handed with demonstrators, saying peaceful protests are welcome, but violence is unacceptable. "Peru wants to be a democratic, civil and orderly country," he said.

Simon spent 8 years in prison in the 1990s over ties to the leftist Tupac Amaru insurgency, but was later released and elected governor of Lambayeque province.

He rejected calls to grant amnesty to people accused of committing human rights crimes during a long civil war that ended in 2000 and killed 69,000 people.

On Thursday, the lawyer for Abimael Guzman, the jailed leader of the brutal Maoist revolutionary group known as the Shining Path, asked that he be granted amnesty, along with military officers charged with rights crimes.

"Peru needs to go through a process of reconciliation but that won't happen by opening up prisons," Simon said.

Though the Shining Path has largely collapsed, a renegade wing has killed about two dozen police or soldiers over the past two months to defend coca-growing areas. Peru is the world's No. 2 cocaine producer, after neighboring Colombia. (Reporting by Terry Wade and Teresa Cespedes; Editing by Dana Ford and Patricia Zengerle)

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