* Protests fuelled by climate of economic hardship
* Protest called in central Madrid ahead of Pope's arrival
* "Indignant Ones", gays, lesbians expected to join in
* Police arrest suspect planning attack on protest
(Adds arrest, details of corporate sponsorship, policing costs)
By Judy MacInnes
MADRID, Aug 16 (Reuters) - While thousands gather in Madrid at a lavish welcome offered to Pope Benedict for a Roman Catholic youth festival this week, protesters are planning to march to complain over its cost at a time of economic hardship.
Those upset by the papal visit include the "Los Indignados" (Indignant Ones) movement, whose mostly young supporters occupied Madrid's central Puerta del Sol square in May to protest against government spending cuts, economic woes, and 21 percent unemployment.
Tension surrounding the six-day event increased on Tuesday when Spanish police arrested a chemistry research student suspected of planning a gas attack on demonstrations against the pope's visit and the public money invested in the celebrations.
Police have confiscated a computer and chemical formulae which are unrelated to the overseas student's studies and say he was attempting to recruit attackers for a planned assault on Wednesday's protest using asphyxiant gases and other chemicals.
Critics of the papal visit include Spain's disaffected youth, as well as gay, lesbian and transgender groups, atheists and even some Spanish priests, who all question the costs, as well as what they see as unseemly corporate sponsorship.
"We are not organising a protest against the Pope but to complain about an event which is very expensive in times of crisis and high unemployment," said Evaristo Villar, a priest and member of Redes Cristianos, which will stage a protest on Wednesday night on the eve of the Pope's arrival.
"An event of this kind has no place in a country with five million unemployed," he said.
One specific grievance has been special reductions on public transport for visiting pilgrims when locals are being charged up to 50 percent more for a single bus or metro ticket.
Organisers of the World Youth Day (WYD) festival say the young pilgrims camping out in community halls and churches during the festivities will be paying for the event and that it will generate about 100 million euros for state coffers.
"WYD is a unique opportunity for the Spanish economy, at zero cost to taxpayers," said Fernando Gimenez Barriocanal, WYD Chief Financial Officer.
Critics have put the costs at around 100 million euros but the government has declined to give a figure for how much the papal visit will set back the state.
A government spokeswoman said most of the costs were on extra security, including putting thousands of extra police on the streets of Madrid, while a police trade union has put the extra security costs during the visit at 2.5 million euros.
Spanish priests complained in June about the high-profile corporate sponsorship deals surrounding the Pope's visit, saying it made the church look privileged.
Corporate logos of the companies, including the euro zone's biggest bank Santander , Telefonica and Coca Cola amongst others fill the official website.
Opponents of the event say individual and corporate sponsors will receive up to 90 percent of their donations back in tax rebates, leaving the taxpayer to foot much of the final bill.
GAYS, LESBIANS JOIN IN
Local gay and lesbian groups and pro-abortion campaigners are expected to join in the protests.
Spain's Catholic Church, whose image was stained by its close relationship with General Francisco Franco during his 36-year dictatorship, has clashed with the Socialist government of Prime Minister Jose Luis Zapatero over gay rights and abortion.
In 2005, Spain became the third country in the world to legalise gay marriage. The law, promoted by Zapatero despite opposition from the church, allows married gay couples to adopt children, something which is anathema to the Vatican.
When Benedict last visited Spain in November 2010, he was met by hundreds of gay protesters who kissed publicly when he arrived to consecrate Barcelona's Sagrada Familia cathedral.
Benedict's schedule includes a visit on Friday to El Escorial, a town outside Madrid that is near the Franco monument of Valle de los Caidos.
But the highlight will be the youth festival's closing mass on Sunday in the Cuatro Vientos aerodrome, where a vast gold- lacquered tree designed to protect the pontiff from the blazing Spanish sun dominates the altar.
The mass is expected to draw about two million people.
Two hundred white portable confessional cabins lined central Madrid's Retiro Park, sealed off with police tape, ready for mass confessions on Saturday in a 'Celebration of Forgiveness'.
Badu Holguin Del Orbe, 40, who had come from the Dominican Republic to see the Pope, dismissed the protestors' concerns.
"We also have a serious economic crisis in Latin America. You can't imagine what it means for us to have to save for two or three years for a ticket to come here to pay witness to our faith," he said.
(Additional reporting by Jose Elias Rodrgiguez Canas, Sonya Dowsett, Maria Ibanez, Jonathan Gleave, and Inmaculada Sanz; Editing by Alistair Lyon)