* Hundreds of rebels attacked main mining hub last month
* Worsening security risks scaring off investors
* Rebels feeding of frustration, separatist sentiment
By Jonny Hogg
KINSHASA, April 9 (Reuters) - Growing unrest in Democratic Republic of Congo's copper-rich Katanga province risks scaring off investors and derailing its thriving mining sector, said the lawmaker heading an inquiry into a rebel attack on the provincial capital last month.
Katanga, in the country's south, has been seen as insulated from the violent unrest that much of the rest of Congo. Billions of dollars have poured into the province to develop mining projects aiming to tap its underexploited mineral wealth.
However, security is steadily eroding as rebel groups, some of them seeking independence for Katanga, sweep down from the north of the province, massacring civilians and emptying villages.
"If nothing is done, Katanga is a powder keg and anything can happen," Claudel Andre Lubaya, a legislator who is the rapporteur for the parliamentary commission for defence and security, said on Tuesday following a visit to Lubumbashi.
"Persistent insecurity could lead to investors pulling out. That's why the government must not take only cosmetic measures."
Last month's raid saw around 300 fighters penetrate into the heart of Lubumbashi, Congo's second city and the country's principal mining hub, before they were stopped by the army's elite Republican Guard.
Lubaya said officials had been aware the rebels' advance on the city 24 hours before the attack but failed to react.
The government on Tuesday announced it had suspended the local heads of the military and police for their failure to prevent the raid in which 15 rebels were killed.
But Lubaya said the problem required dialogue and deeper involvement from authorities in Kinshasa to prevent rebel leaders and their suspected political backers from feeding off local grievances and decades-old secessionist sentiment.
"State authority must be re-established. At the moment it is only partial," Lubaya said, adding that the parliamentary inquiry's findings would be released this week.
Katanga hosts several international mining companies, including Freeport McMoRan and commodities trader Glencore and exports about half a million tonnes of copper a year.
But foreign investment and mineral wealth has not trickled down to most Katangans, and the province has some of the worst malnutrition and infant mortality rates in a country the United Nations says is the world's least developed.
Katanga briefly broke away from the rest of Congo following independence from Belgium in 1960 and has maintained a fractious relationship with central government in Kinshasa ever since.
The region is not only critical to Congo's fragile economy, but is also the political heartland of President Joseph Kabila, who is already struggling to control a separate rebellion in the long troubled eastern borderlands.