By Tim Gaynor

TUCSON, Arizona (Reuters) - A 23-year-old college dropout accused of killing six people and wounding 13 others, including then-U.S. Congresswoman Gabrielle Giffords, in a Tucson shooting rampage last year was expected to plead guilty on Tuesday if a judge finds him mentally competent, a person familiar with the case said.

A federal judge has set a competency hearing for Jared Loughner for 11 a.m. local time in U.S. District Court in Tucson, to be followed by a change-of-plea hearing if he is found fit to stand trial.

Giffords, an Arizona Democrat seen as a rising star in the party, was holding one of her regular "Congress On Your Corner" events at a Tucson supermarket in January 2011 when she was shot through the head at close range. The six people killed in the shooting include a federal judge and a 9-year-old girl.

A source close to the case has told Reuters that Loughner, who is charged with 49 criminal counts including first-degree murder, is prepared to change his plea to guilty. A not guilty plea was entered on his behalf last year.

Few other details were available ahead of the hearing, but a plea agreement could potentially spare Loughner from facing the death penalty in the rampage.

The Los Angeles Times reported that psychiatric experts who have examined Loughner were expected to testify that he now understands the charges against him.

A spokesman for the U.S. Attorney's office in Phoenix has said he could "neither confirm nor deny" the change of plea. Attorneys representing Loughner have not responded to emailed requests for comment.

Loughner was determined unfit to stand trial in May 2011 after he disrupted court proceedings and was dragged out of the courtroom. Court appointed experts said he suffered from schizophrenia, disordered thinking and delusions.

He has since been held at a U.S. Bureau of Prisons psychiatric hospital in Springfield, Missouri, where he has been forcibly medicated to treat psychosis and make him fit for trial.

Tuesday's hearing was to be the fourth to determine if Loughner is mentally competent.

U.S. District Judge Larry Burns originally set the hearing in June at the request of prosecutors and defense attorneys who wanted a status report after more than a year of treatment and legal wrangling over his competency.

Burns previously extended Loughner's stay in the Federal Medical Center facility, noting that "measurable progress" had been made by those treating him.

In the early weeks of his treatment, prior to the regime of forced medication, Loughner reportedly paced his cell and passed nights without sleeping. However, clues to his current mental state are few.

A psychologist's report on efforts to make him mentally fit to stand trial was due to be submitted to the court in June, but has not been made public.

Giffords, who suffered a gunshot wound to the head, resigned from the U.S. House of Representatives in January to focus on her recovery.

Her former aide, Ron Barber, who was also wounded in the shooting spree, won a special election to fill her seat in June and will face re-election in November to serve a full two-year term in Congress.

(Reporting By Tim Gaynor; Editing by Dan Whitcomb, Cynthia Johnston and Lisa Shumaker)