Toppled Zelaya in new bid to return to Honduras

TEGUCIGALPA (Reuters) - Ousted President Manuel Zelaya headed towards Honduras on Thursday in a new attempt to retake power and overturn a military coup that has become Central America's biggest political crisis in two decades.

Wearing his trademark cowboy hat, the leftist leader mounted a jeep in the Nicaraguan capital Managua and headed north for the Honduran border followed by a convoy of supporters and journalists.

Zelaya, overthrown on June 28 and forced into exile, says he will try to cross into Honduras on Saturday, despite a threat of arrest by the de facto government which toppled him.

"I hope you'll join me in the return of a president legitimately chosen by the people and illegally overthrown by a fascist force," he said before leaving Managua.

Trying to keep Zelaya's supporters away, the interim government declared an all-night curfew along the border area and the defence ministry warned it would not be responsible for the security of people caught up in any violence.

Soldiers set up multiple check points on roads near the border. One woman said soldiers had stopped her bus, which was carrying several dozen Zelaya supporters headed for the Nicaraguan border on Thursday and told them to get off.

Zelaya had upset the ruling elite, which accused him of trying to seek re-election and moving the country closer to Venezuela's leftist President Hugo Chavez.

TALKS IN TROUBLE

The United States and Latin American governments have demanded Zelaya be reinstated but Honduras' de facto rulers are refusing to bend to the pressure.

"The rule of law dictates that Mr. Manuel Zelaya cannot return to Honduras as president. From the point of view of Honduran law, this matter is closed," said Martha Alvarado, the de facto administration's deputy foreign minister.

It was unclear exactly when and where Zelaya planned to enter his homeland. He said he would spend Friday in northern Nicaraguan border towns then head for the border on Saturday.

An attempt earlier this month to return in a Venezuelan plane was thwarted when the military blocked the runway and a young pro-Zelaya protester was killed in clashes with troops.

Negotiations in Costa Rica over resolving the crisis have run into deep trouble.

The government that took over after the coup agreed to consult with Congress and the Supreme Court on a new proposal drawn up by mediator Costa Rican President Oscar Arias and including Zelaya's reinstatement.

But it later threw cold water on hopes for a breakthrough.

"I don't think the Supreme Court or the state prosecutor's office or Congress are going to change their criteria. I think they will maintain their position against Manuel Zelaya's return to power," said Mauricio Villeda, a pro-coup negotiator.

The Honduras coup and its aftermath is Central America's worst political crisis since the U.S. invasion of Panama in 1989 and is the biggest test so far for U.S. President Barack Obama as he seeks to improve relations with Latin America.

'NORTH KOREA, ALBANIA'

Arias, a Nobel Peace Prize winner in the 1980s, said the de facto leaders of Honduras risk becoming international pariahs if they do not agree to back down.

"It is completely isolated. They have become the North Korea or the Albania of Central America," Arias said late on Wednesday.

U.S. President Obama has condemned the coup, cut $16.5 million (10 million pounds) in military aid and threatened to slash economic aid. Honduras, one of the poorest countries in Latin America and a coffee exporter, could be hard hit by any further sanctions.

Honduras' interim foreign minister Carlos Lopez briefly floated a proposal in the Costa Rica talks that allowed for Zelaya's return but he later did an about-face.

Both sides in Honduras appear to agree to moving up the presidential election, currently set for November, but Zelaya's return is a tough sticking point.

The Organisation of American States, or OAS, warned the de facto government that it needs to agree to Arias' proposal.

"A rejection of this proposal opens the path to confrontation," OAS head Jose Miguel Insulza.

Zelaya was seized by the army and whisked out of Honduras after Congress and the Supreme Court accused him of violating the constitution by trying to extend presidential term limits.

His approval rating had fallen to about 30 percent but many in the poor countryside still support him.

"No one is going to stop us. We are going to walk to the Nicaraguan border to receive our President Zelaya," said protester Jaquelin Funes, 31.

(Additional reporting by Gustavo Palencia, Marco Aquino and Sean Mattson in Honduras, Ivan Castro in Managua, and Juana Casas in San Jose)