PHOENIX - The furor over Arizona's new law cracking down on illegal immigrants grew Monday as opponents used refried beans to smear swastikas on the state Capitol; civil rights leaders demanded a boycott of the state; and the Obama administration weighed a possible legal challenge.

Activists are planning a challenge of their own, hoping to block the law from taking effect by arguing that it encroaches on the federal government's authority to regulate immigration and violates people's constitutional rights by giving police too much power.

The measure - set to take effect in late July or early August - would make it a crime under state law to be in the U.S. illegally. It directs state and local police to question people about their immigration status if there is reason to suspect they are illegal.

"If you look or sound foreign, you are going to be subjected to never-ending requests for police to confirm your identity and to confirm your citizenship," said Alessandra Soler Meetze, executive director of the American Civil Liberties Union of Arizona, which is exploring legal action.

Employees at the Capitol came to work Monday to find that vandals had smeared swastikas on the windows. And protesters gathered for a second straight day to speak out against a law they say will lead to rampant racial profiling of anyone who looks Hispanic.

The White House would not rule out the possibility that the administration would take legal action against Arizona.

President Obama, who warned last week that the measure could lead to police abuses, asked the Justice Department to complete a review of the law's implications before deciding how to proceed.

Mexican President Felipe Calderón said the law is discriminatory and warned that trade and political ties with Arizona will be seriously strained by the crackdown.

Arizona is home to an estimated 460,000 illegal immigrants and is the nation's busiest gateway for people slipping into the country.

San Francisco City Attorney Dennis Herrera urged policymakers in his city to stop dealing with Arizona and Arizona businesses.

Herrera said his teams will start determining which contracts between the city and county of San Francisco and Arizona could be severed without penalty. It is unclear how many businesses that could affect.

This tactic has been used against Arizona before with success, Herrera said.

Arizona was one of the last states to adopt a holiday honoring Martin Luther King Jr. - a reluctance that led to a boycott in the 1980s that cost Phoenix hundreds of conventions and Super Bowl XXVII, in 1993. The pressure, and the financial pinch, led the state to put the holiday on the ballot. Voters approved the measure, making Martin Luther King Day a holiday.

Phoenix Mayor Phil Gordon, who has opposed the Arizona law, asked San Francisco supervisors to wait before taking such drastic steps.

"Calling for a boycott now would hurt immigrants and residents who depend on the revenue for their own employment," said Gordon. "We are fighting it in court and are confident it will never be implemented."

Calderón on Monday condemned the law as discriminatory and warned that relations with Arizona will suffer.

The measure "opens the door to intolerance, hate, discrimination and abuse in law enforcement," Calderón said.

Calderón said he instructed the Foreign Relations Department to double its efforts to protect the rights of Mexicans living in the United States and seek help from lawyers and immigration experts.

"Nobody can sit around with their arms crossed in the face of decisions that so clearly affect our countrymen," Calderón said in a speech at the Institute for Mexicans Abroad.

Some Mexican legislators have urged a trade boycott against Arizona, and several called the federal government's response lukewarm.

"In Congress, we support any trade and transport boycott necessary to reverse this law," said Oscar Martin Arce, a lawmaker from the president's National Action Party.

Mexico is Arizona's largest foreign market. The state sent $4.5 billion in exports to Mexico in 2009 - nearly a third of its total exports, according to the U.S. International Trade Administration.

Andres Ibarra, president of the chamber of commerce in Nogales, Sonora, said he doubted the government would impose a formal trade boycott, saying it would hurt Mexico most.

Even so, he warned the immigration law would harm Arizona economically.

Ibarra said the state depends heavily on cheap labor from Mexican immigrants and any surge in deportations would make the state less competitive.

"It's regrettable. I think this was a hasty decision that did not consider the consequences, not only for Mexicans and undocumented people from other countries, but also for the Arizona economy," Ibarra said. "Immigrants, as everyone knows, do the work that Americans don't want to do.

"This campaign is completely based on racism. It's a xenophobic campaign," he added.

Calderón said he would raise his concerns with Obama and U.S. lawmakers during a visit to Washington in May.