By Andrew Cawthorne and Laura MacInnis
CARTAGENA, Colombia (Reuters) - A prostitution scandal involving U.S. security personnel in Colombia threatened on Saturday to eclipse President Barack Obama's charm offensive to Latin America.
In a major embarrassment for the United States at the Summit of the Americas attended by more than 30 heads of state, 11 U.S. Secret Service agents were sent home and five military servicemen grounded over "misconduct" allegations in a hotel.
Prostitutes were taken to the hotel, according to a Colombian police source.
The widening controversy was overshadowing a host of weightier topics at the two-day summit that began on Saturday.
"I had a breakfast meeting to discuss trade and drugs, but the only thing the other delegates wanted to talk about was the story of the agents and the hookers," chuckled one Latin American diplomat in the historic city of Cartagena.
A U.S. lawmaker who heads a congressional committee that oversees the Secret Service told CNN the incident apparently involved 11 agents "and they did bring women back to their rooms."
Representative Peter King, chairman of the U.S. House of Representatives Homeland Security Committee, said "one of the women did not leave the room in the morning" and that a hotel manager tried to get in the room. King, briefed on the incident, said the woman emerged and said "they owed her money."
As well as the hotel incident a day or two before Obama's arrival on Friday, locals also said the Americans were involved in a fracas at a brothel in the dingy outskirts of Cartagena.
Locals were deeply unimpressed.
"They came to look after their president, not to have a party," Cartagena street vendor Rosa Elena Prieto said. "The weak flesh of men costs them their jobs."
Making no reference to the scandal, Obama tackled head-on accusations he had neglected Latin America while dealing with conflicts in Iraq and Afghanistan and other faraway global priorities.
"We've never been more excited about the prospect of working as equal partners with our brothers and sisters in Latin America and the Caribbean," he told business officials before the start of the main heads-of-state summit, which will last into Sunday.
Obama also hailed the potential to boost trade between the "nearly a billion consumers" of North and South America.
The reality, though, is different: China has taken advantage of perceived U.S. neglect and is now the main trade partner for various countries, including regional powerhouse Brazil.
Running for re-election in November, Obama is also under pressure from domestic voters to show his foreign policies give priority to trade that creates American jobs.
OLD DEBATES
Latin American leaders want the United States to be more engaged on issues like rapprochement with communist-led Cuba and an overhaul of anti-drug policies, including possible narcotics legalization as a way to take profits out of the trade.
"Sometimes those controversies date back to before I was born," Obama said wryly.
"And sometimes I feel as if in some of these discussions, or at least the press reports, we're caught in a time warp, going back to the 1950s and gunboat diplomacy and Yankees and the Cold War, and this and that and the other."
Despite praise for robust economic growth in Latin America and enthusiasm over trade, the U.S. president was firm in rejecting calls to legalize either growing or consuming drugs.
Many in Latin America feel a fresh approach is needed - and a shift away from hard-line policies - after decades of violence, in producer and trafficking nations like Colombia and Mexico.
"I don't mind a debate around issues like decriminalization. I personally don't agree that's a solution to the problem," Obama said. "But I think that given the pressures that a lot of governments are under here, under-resourced, overwhelmed by violence, it's completely understandable that they would look for new approaches, and we want to cooperate with them."
Colombian pop star Shakira brought a splash of showbiz to the proceedings by singing her national anthem for the more than 30 heads of state present at the start of the summit.
Missing from the Organization of American States' sixth such hemispheric gathering were Ecuador's Rafael Correa, who is boycotting the event over Cuba's continued exclusion, and Venezuela's Hugo Chavez, who is undergoing cancer treatment.
Argentina's foreign minister told media from his country the final summit declaration was stalled over the issue of Cuba, with 32 nations supporting its inclusion in the next Summit of the Americas, but the United States vetoing that.
'MONETARY TSUNAMI'
Brazilian President Dilma Rousseff gave Obama an earful on U.S. expansionist monetary policy that is sending a flood of funds into developing nations, forcing up currencies and hurting and other rich nations' competitiveness.
"The way these countries, the most developed ones, especially in the euro region in the last year, have reacted to the crisis with monetary expansion has produced a monetary tsunami," she said, as Obama listened.
"Obviously we have to take measures to defend ourselves. Note the word I chose - 'defend,' not 'protect,'" added Rousseff, whose government's actions to curb imports have been decried as protectionism by some in the region.
The host, President Juan Manuel Santos, is using the summit to showcase Colombia's new economic stability after decades of guerrilla and drug violence that scared off investors.
Although seeking to position himself as a regional mediator - particularly between conservative governments and the anti-American bloc led by Chavez - Santos nevertheless weighed in to support Brazil's position in front of Obama.
"In some way, (they) are exporting their crisis to us via the appreciation of our currencies," Santos said, referring to the damage done to local exporters as Latin American currencies gain strength. "I share President Dilma Rousseff's anxiety."
Despite Colombia's traditional closeness to Washington, which has helped finance its war on guerrillas, Santos also spoke bluntly on the issue of Cuba.
"It's an anachronism that keeps us anchored to a Cold War era we came out of various decades ago," he said, calling another summit without Cuba "unacceptable."
From Havana, Cuba's former president, Fidel Castro, weighed in with a withering newspaper column about the OAS and its "guayabera summit" - a reference to the loose-fitting shirts popular in the Caribbean and being worn by many heads of state in Cartagena.
(Additional reporting by Caren Bohan, Helen Murphy, Pablo Garibian, Brian Ellsworth, Mario Naranjo, and Luis Jaime Acosta in Cartagena; Editing by Daniel Wallis, Kieran Murray and Will Dunham)