* Jan. 15-16 election will bring veneer of democracy
* Nazarbayev says wants to see multi-party parliament
* Says early election must take place before new crisis hits
By Robin Paxton and Mariya Gordeyeva
ALMATY, Nov 16 (Reuters) - Kazakhstan's veteran leader dissolved the lower house of parliament on Wednesday and called a snap parliamentary election in mid-January, a move designed to add a veneer of democracy to Central Asia's largest economy as a new financial crunch looms.
The election, to be held on Jan. 15-16, will dilute the ruling party's monopoly in the oil-producing country and install at least a nominal opposition presence in the one-party chamber.
Many analysts expect the second-placed party to be widely sympathetic to the ruling Nur Otan party and pose no direct challenge to the leadership of the former Soviet republic.
A snap parliamentary election had been widely predicted after 71-year-old President Nursultan Nazarbayev won another five years in office in a presidential vote in April. The next parliamentary election had been scheduled for August 2012.
Nazarbayev, who has ruled his vast nation of 16.6 million for more than 20 years with little tolerance of dissent, held consultations on Tuesday after members of the lower house -- the Mazhilis -- asked him last week to dissolve the chamber.
Presidential site www.akorda.kz quoted Nazarbayev as telling the meeting that society needed "a multi-party parliament" and that an election campaign in the middle of next year would only distract authorities from tackling a looming economic crisis.
"Events in the European Union affect us directly," he said. "European states are not only Kazakhstan's natural and important partners. They are investors and the markets for our goods."
He said a new parliament, to be elected for five years, would better equip Kazakhstan to modernise its economy, which still depends heavily on the export of oil and metals.
Nazarbayev announced the election in a presidential decree. The vote from party lists will be held on Jan. 15, and the People's Assembly of Kazakhstan, a consultative body loyal to the president, will select its nine deputies the following day.
The upper house of parliament, the Senate, will assume the lower house's responsibility until a new Mazhilis is formed.
Senate Chairman Kairat Mami is currently the person who would automatically assume the presidential duties in the event of Nazarbayev's leaving office unexpectedly.
SPRINGBOARD INTO POLITICS
Kazakhstan, Central Asia's largest economy and oil producer, has achieved annual economic growth of around 8 percent over the last decade and attracted more than $120 billion in foreign investment since independence.
But the country has never held an election judged free and fair by Western monitors.
Nazarbayev's Nur Otan party, which has 98 of the 107 seats in the Mazhilis, controls every facet of life in Kazakhstan and is widely expected to win an overwhelming election majority. The People's Assembly chooses the other deputies.
Changes to the electoral law will permit the second-placed party in the next election to enter parliament even if it falls short of the 7 percent threshold that guarantees a presence.
Gemma Ferst, analyst with Eurasia Group, said the election might provide a "springboard" for Timur Kulibayev, the president's son-in-law, to enter the political arena that he has long shunned.
Kulibayev, the billionaire head of the sovereign wealth fund, is viewed by many analysts as the most likely successor to Nazarbayev, but has always played down political ambitions.
He is seen as close to Ak Zhol, a party representing big business and many of the elite which has risen rapidly to become the second-largest political party in the country by membership.
"Of course we'll be going to the polls. I think we are capable of winning 15 to 20 seats," Azat Peruashev, chairman of the Ak Zhol party, told Reuters.
Another party, Adilet, also has designs on second place. Tolegen Sydykhov, first deputy chairman, said he expected his party -- which represents the interests of many lawyers and lawmakers -- to score around 15 percent of the vote.
"Here's hoping that we follow the natural path to a multi-party parliament, and not an artificial one," Sydykhov said.
Mazhilis speaker Ural Mukhamedzhanov, who also heads the Nur Otan parliamentary faction, said he expected up to half of the existing members of parliament to retain their seats.
"This parliament is very professional and the guys have gained a lot of good experience," Mukhamedzhanov was quoted as saying by news agency Novosti-Kazakhstan.
One party which will not be participating is the harshly critical Alga! ("Forward!"), which has repeatedly been denied official registration. Its leader has called the election "window-dressing for the West".
The Communist Party of Kazakhstan, also fiercely critical of Nazarbayev, was suspended for six months in October. This led it to accuse the authorities at the time of eliminating potential opponents in a snap vote.