UPDATE 1-Canadian election rivals square off over economy

(Adds Layton comments)

CALGARY, Alberta, Sept 26 (Reuters) - Canadian Prime Minister Stephen Harper lashed out at his opponents on the campaign trail on Friday, saying they wanted the country to sink into a recession as the world economy slows.

The Conservative leader has stuck to his line ahead of the Oct. 14 election that only his government's prudent care of the public purse has protected Canada from the economic and financial meltdown that has hit the United States -- an idea that has come under attack from Stephane Dion, the leader of main opposition Liberal Party.

"We have seen commentators around the world and respected figures here emphasize the strong foundations of the Canadian economy," Harper said at a campaign stop in Calgary.

"And the leader of the opposition and his leading critics (are) going around and trying to tell Canadians the opposite, trying to drive down confidence in the Canadian economy without foundation and, quite frankly, sitting on the sidelines virtually cheering for there to be a recession."

Harper, Dion and New Democratic Party leader Jack Layton are battling it out over who is the better financial manager as economic fear spreads.

Dion retorted to Harper's attack by saying that the last recession in Canada was during Conservative Prime Minister Brian Mulroney's government in the early 1990s and that the Liberals pulled the country out of it.

"This kind of blindly partisan rhetoric is a glaring example of what is wrong with Mr. Harper and his government," Dion said in a statement.

"Rather than debating with their opponents, their first instinct is to resort to the low-blow attack and baseless character smears."

Layton accused Harper of ignoring the potential impact on Canada of the U.S. economic turmoil, and said the Canadian economy was also threatened by "unprecedented levels of personal debt."

"We should be taking preventative steps now," Layton said.

Dion has blamed Harper's poor economic management for first-half economic growth that was weakest in 18 years. And the Liberals have warned that Canada is in danger of slipping into deficit, after years of budget surpluses begun in the mid-1990s by a previous Liberal government.

Harper has warned that Dion's proposal for a carbon tax to fight global warming would be a disaster at a time when the economy remains fragile.

Canada has not been hit as hard as the United States by the credit crunch that has sent the economy there into a tailspin, but economists have warned it is not insulated from global forces.

Polls indicate the Conservatives have a healthy lead and will easily win the election, possibly turning their current minority in the House of Commons into a majority. (Reporting by Jeffrey Jones, David Ljunggren, Allan Dowd; editing by Rob Wilson)