UPDATE 8-Canadian government falls, election set for May

* Opposition legislators bring down minority government

* Poll shows ruling Conservatives set to retain power

* Canada PM says election not needed, cites economy (Adds Ekos poll result)

By Randall Palmer and David Ljunggren

OTTAWA, March 25 (Reuters) - The opposition toppled Canada's Conservative government on Friday, accusing it of sleaze and mismanagement, and set the scene for a May election that polls indicate the Conservatives will win.

Opposition legislators threw papers in the air in glee after voting 156-145 in the House of Commons to defeat the minority government, which they also say has mismanaged the economy and is overly secretive.

The defeat paves the way for an election that will likely be fought on two main themes -- ethics and the economy. Likely dates are May 2 or May 9.

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Canada's dollar was steady at C$0.9810 to the U.S. dollar, or $1.0194. Domestic stocks ignored the political news and ended slightly higher on a rally in resource stocks.

Prime Minister Stephen Harper admitted he was disappointed by the result, and said Canadians did not want what will be the fourth general election in less than seven years.

"Our priority will remain to ensure stability and security for Canadians in what remain extremely challenging global circumstances," he told reporters soon after the vote.

Harper said he would visit Governor General David Johnston, the representative of Queen Elizabeth, Canada's head of state, on Saturday to seek the formal dissolution of Parliament and set a date for the election.

The Conservatives, in power since 2006 with two successive minority governments, are well ahead of the main opposition Liberal Party in opinion polls. If the polls translate into votes, Harper would once again get the most number of seats.

Only the Conservatives or the Liberals can realistically win and both stress the need for fiscal austerity and the importance of paying down Canada's record budget deficit.

The opposition thinks it can benefit from a series of ethical scandals to hit the Conservatives, who came to power promising to clean up Ottawa. [ID:nN23241074]

This week, a parliamentary committee slapped the government with the first contempt ruling in Canada's history, saying the Conservatives had hidden the full costs of a spending program.

"There are only two alternatives here -- more of this disrespect for democracy, more of this contempt for the Canadian people, or a compassionate, responsible Liberal government," said Liberal leader Michael Ignatieff, an academic and broadcaster who has headed the party since 2008.

Harper says that if he does not win a majority in the forthcoming election, the Liberals, the left-leaning New Democrats and the separatist Bloc Quebecois are planning to form an unstable coalition government.

The charge could dog Ignatieff, who has so far declined to categorically rule out the idea.

"Any democratic politician ... respects the verdict of the people," he said.

Pollster Ipsos Reid released a survey on Thursday showing 43 percent of voters back the Conservatives [ID:nN24181946] .

If that number holds, it could bring Harper and the Conservatives their first majority in the 308-seat House of Commons and secure a four-year term in office.

But an Ekos poll broadcast on Friday put the lead much smaller, at seven points, which would mean the Conservatives would be shy of a majority of seats. [ID:nN25270133]

The Conservatives say an election is the last thing Canadians need at a time when the economy is outshining those of most industrialized nations but is still fragile as it recovers from recession.

The Liberals vow to scrap C$6 billion ($6.1 billion) in corporate tax cuts and end multibillion-dollar plans to buy new fighter jets and build prison cells.

Police are investigating allegations of misconduct by a former Harper aide and, last month, four Conservative officials were charged with violating election financing rules in 2006.

($1=$0.98 Canadian) (Reporting by David Ljunggren; editing by Rob Wilson and Janet Guttsman)