By Greg Brosnan

APATZINGAN, Mexico, May 13 (Reuters) - Nearly 200 years ago, high-minded Mexican independence leaders seeking to break away from Spain hid in the isolated town of Apatzingan to write one of Latin America's first constitutions.

Once a source of national pride, the town in the central drug-producing state of Michoacan is now flooded with guns and narcotics cash. Bringing it under control is one of the toughest challenges for President Felipe Calderon in his war against drug cartels.

Soldiers killed four drug gang suspects in Apatzingan last week after cartel gunmen killed five soldiers in an attack nearby, the heaviest single army loss since Calderon deployed thousands of troops to fight the traffickers late last year.

With the green hills surrounding Apatzingan hiding methamphetamine labs and landing strips for planes moving cocaine to the United States, downtown streets are jammed with gleaming pick-up trucks and pawn shops offering to buy gold. Bright signs urge locals to exchange their dollars.

"You only hear bad things about Apatzingan now; it's all about narcos, all about death," said Leopoldo Novoa, a musician who sings ballads in one of Apatzingan's few restaurants.

There is little sign that the town played a pivotal role in Mexico's history when rebels on the run from Spanish troops gathered here in 1814 to draw up the the Constitution of Apatzingan, which outlined the future independent Mexican republic.

After its 19th century moment of glory, Apatzingan languished as an obscure but peaceful backwater until a flood of drug cash arrived in recent years, first from marijuana and then from the methamphetamine trade.

THREE-WAY FIGHT

The trouble began when the local Milenio Cartel splintered and Mexico's two most violent drug gangs moved in to pick up the pieces.

The town became the center of a fight between local allies of the Gulf Cartel from northeastern Mexico and others backed by traffickers from western Sinaloa state headed by Mexico's most wanted man, Joaquin "Shorty" Guzman.

When the army moved in last year, violence exploded into a complicated three-way struggle.

"If I could leave I would," said Novoa. "People were calmer before, they didn't race to take out their guns. Now they do."

While Calderon's militarization of the drug fight has drawn fire from critics such as human rights commission head Jose Luis Soberanes, many residents of Apatzingan are comforted by the army's presence.

"It's great," said Gerardo Barajas, 15, as soldiers backed by Humvee vehicles crept up a dirt street, their machine-guns trained on a shuttered corner grocery store as they searched for traffickers. "I hope they finish them all off," he said.

On Apatzingan's leafy main square, stalls do a brisk trade in pirate DVDs of Mexican drug mafia films with names like "Revenge of the Narcos" and "Land of Death."

Recent bloodshed, however, has made reality just as violent said Agustin Bernal, a star of many of the films and a former resident of Apatzingan, during a visit home.

"We're living it to an extreme now, and it's very painful."

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