(Adds Bolivian ambassador comment, details, paragraphs 7-10)

By Arshad Mohammed

WASHINGTON, Sept 14 (Reuters) - Bolivia, the third-largest cocaine producer in the world, has done enough to fight the drug trade over the past year to be spared U.S. sanctions, U.S. officials said on Friday.

The officials, who spoke on condition of anonymity because the decision will not be made public until Monday, said Bolivia would not be put on the U.S. list of states that have "failed demonstrably" to meet their counter-narcotics commitments.

If Bolivia were on the list, which is to be announced by the White House on Monday, the United States could cut off U.S. aid other than counter-narcotics and humanitarian funds.

U.S. officials cited two reasons for the decision.

First, Bolivia met a U.S. target of eradicating at least 5,000 hectares (12,360 acres) of coca crop. Second, U.S. officials believe placing it on the list could undercut counter-narcotics cooperation.

The presidential determination will likely paint a mixed picture of counter-narcotics work in Bolivia, showing increased drug seizures but suggesting those reflected higher cocaine production.

Cocaine seizures were up 17 percent to 11 tonnes in Bolivia from October 2006 to May 2007, while coca leaf seizures increased by 48 percent, said one U.S. official.

But that official said the United States believed the increased seizures were likely due to higher cocaine production and coca cultivation and suggested the increased cultivation could exceed the 5,600 hectares (13,840 acres) that were eradicated.

A year ago, the United States said the "zero cocaine, but not zero coca" policy pursued by Bolivian President Evo Morales had focused primarily on interdiction and given short shrift to eradication and alternative development for coca growers.

Morales, the former head of a coca growers union, does not believe in wholesale eradication of coca crops because he wants to develop a legal market for products made out of coca leaves.

Coca is the main ingredient for cocaine, but Bolivians have chewed it for centuries as a mild stimulant that reduces hunger pangs and altitude sickness.

Gustavo Guzman, the Bolivian ambassador to the United States, was pleased by the U.S. decision and said the U.S. report recognized Bolivia's interdiction efforts but questioned its policy on the production and consumption of coca leaf.

"The report reveals reasonable concerns of the United States," Guzman told Reuters in Washington. "Bolivia will keep up with its zero cocaine, but not zero coca."

The decision on whether to put Bolivia on the "failed demonstrably" list has been a matter of dispute within the Bush administration.

In its report on the matter a year ago, the administration chose not to put Bolivia on the list but said it would review the matter in six months. Six months later, it completed the review without making any decision.

The dispute has pitted U.S. officials who argued Bolivia deserved to be put on the list against those who believe it was more important to maintain relations so as to spur Bolivia to do more on counter-narcotics through friendly persuasion. (Additional reporting by Adriana Garcia)

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