By Edith Honan

NEW YORK (Reuters) - New York City, long a place where counterfeit watches and fake designer handbags are sold on street corners, is unveiling an ad campaign warning consumers of the human cost of indulging in knockoffs.

The city will display 50 black, yellow and red posters in tourist spots like Times Square and Chinatown over the next two months with the message, "The Real Price of Counterfeit Goods."

"When you buy counterfeit goods, you support child labor, drug trafficking, organized crime and even worse," one version reads. Another says that buyers have cost the city $1 billion per year in lost tax revenue.

The money could have funded "10,000 new cops, 10,000 new firefighters, 10,000 new teachers," Deputy New York City Mayor Edward Skyler said.

The United States says China is the No. 1 offender when it comes to counterfeit goods. Others include South Korea, Pakistan and India.

The campaign, which starts on Monday, estimates the global trade in counterfeit goods at $650 billion per year including $80 billion in New York City alone.

U.S. authorities have said one group sells counterfeit goods including fake Viagra to support the Lebanese group Hezbollah, which Washington lists as a terrorist organization.

The group behind the 2004 train bombings in Madrid that killed 191 people was partly funded by the sale of illegal compact discs, New York Police Commissioner Ray Kelly said.

"Do American consumers want their hard-earned money to support terrorism? Or child labor? Or drug trafficking?" Harper's Bazaar magazine, a co-sponsor of the campaign, said in a statement.

"As frightening as it may seem, that is exactly what is happening whenever a counterfeit DVD, handbag or any other product is knowingly purchased," the fashion publication said.

(Editing by Daniel Trotta and Xavier Briand)