Kenya coastguard surrounds armed gang, hostage

* Armed gang firing into air to ward off coastguard, aircraft

* Second kidnapping of foreigner from area in 3 weeks

* Tourism major foreign currency earner for Kenya

(Adds high-sea standoff, background)

By Caroline Mango

MOMBASA, Kenya, Oct 1 (Reuters) - Two Kenyan coastguard vessels have caught up with a boat carrying gunmen and an elderly French woman kidnapped earlier on Saturday from the north Kenyan coast, the country's tourism minister said.

Minister Najib Balala told Reuters the high-seas standoff was taking place near the border with Somalia and that the armed gang were firing into the air in an attempt to scare off the vessels and circling aircraft.

"Two boats of the Kenyan coastguard have surrounded the boat on which the gunmen and woman are," Balala told Reuters.

"Our fear is if we do drown the boat we will drown the woman," he said, adding that the woman was disabled.

Residents said the kidnap appeared to be a planned, targeted attack. The armed gang landed on Manda island by boat and fired several gunshots into the air as they raided the thatched beach cottage where the elderly woman was sleeping.

The French Foreign Ministry had no immediate comment.

It is the second time gunmen with links to Somalia have kidnapped foreign visitors on the Lamu archipelago, raising fears that organised criminal networks across the border are increasing their reach.

Abdallah Sadili, who has rented out the cottage to the woman for about eight years and lives on the neighbouring Lamu island, said he was woken by at least two cracks of gunfire from across the narrow channel of water.

"At first I prayed and then tried to go back to sleep, but there was such a commotion across the water that I couldn't," Sadili told Reuters by telephone. "I went across the channel by boat and realised she was gone."

Abu Chiaba, the legislator for Lamu East in east Africa's biggest economy, said the gunmen raided the private house under the cover of darkness.

"Armed people came into Manda by boat in the middle of the night. The elderly French woman is well known in the area, she comes to Manda regularly," Chiaba told Reuters.

In early September, gunmen attacked British tourists at a camp resort a short speedboat ride away from Lamu, killing the man and kidnapping his wife.

Somali pirates said she was being held in Somalia.

"We have deployed a contingent of police officers to the area. The army is already there and a police helicopter is in the air," said Provincial Police Officer Adoli Aggrey.

The latest kidnapping risks dealing a serious blow to Kenya's tourism sector, a major source of foreign exchange.