Juan A. Martinez Matos, 26, a married father of four, confessed he was cruising the "red light" district of Caguas, a city south of San Juan, looking for women and picked up 19-year-old Jorge Steven Lopez Mercado thinking he was a woman, the report said.
When the two went into a house "the suspect (allegedly) found out that Lopez was a man, after Lopez made sexual advances, and as a result of the rage, Matos did what he did," the report quoted in the newspaper El Nuevo Dia said.
Lopez Mercaco's dismembered, beheaded and burned body was found Friday on a road in Cayey, Puerto Rico, near Caguas.
A gay panic defense argues a person acted in a state of violent temporary insanity.
The U.S. attorney's office weighed the possibility of charging Martinez Matos under a new federal hate crimes law, spokeswoman Lymarie Llovet told CNN.
U.S. President Barack Obama signed into law last month the Matthew Shepard Act extending federal protection to illegal acts motivated by a person's actual or perceived gender, sexual orientation, gender identity or disability.
Shepard was a University of Wyoming student found to have been tortured and murdered near Laramie, Wyo., in 1998. During the trial, witnesses testified Shepard was targeted because he was gay.
If Martinez Matos is charged under the new hate crimes provision, it would likely be the first such case under the latest addition to the law.
A vigil is to be held Sunday in Oakland, Calif., where Lopez Mercado lived and was active in the gay community.
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