UPDATE 1-Strauss-Kahn looks set for legal victory

* Strauss-Kahn still faces civil suit, French allegation

By Mark Egan and Daniel Trotta

NEW YORK, Aug 22 Prosecutors on Monday appeared set to drop sexual assault charges against former IMF director Dominique Strauss-Kahn, a stunning reversal in the case against a man who many had seen as the next president of France.

The Manhattan District Attorney's office will recommend to a judge that the case be dismissed after they lost faith in the accuser, a 32-year-old hotel maid from Guinea, due to lies she told about her past, New York news media reported.

Prosecutors were to meet with the maid, Nafissatou Diallo, and her lawyer at 3 p.m. (1900 GMT) on Monday to discuss the case ahead of a court hearing on Tuesday.

Strauss-Kahn, who has strongly denied the allegations, was the leading contender for the April 2012 presidential elections until Diallo accused him of attempted rape and forcing her to perform oral sex on May 14 in his luxury Sofitel Hotel suite near Times Square.

Strauss-Kahn, 62, was marched from a first-class cabin of an Air France plane, which was to take him to meetings in Europe on the sovereign debt crisis, to face the charges.

After a night in custody, he was paraded unshaven before the media at the Manhattan courthouse in a "perp" walk, a scene that enraged many in France who viewed it as tantamount to convicting a man who had yet to be charged with any crime.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

More stories on the Strauss-Kahn case [ID:nDSK]

A TIMELINE of events [ID:nN1E77L0T0]

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Held in gang-ridden Rikers Island prison, Strauss-Kahn a few days later resigned his job as managing director of the International Monetary Fund -- a position which is among the most powerful in global finance.

Prosecutors initially had trumpeted Diallo as a credible witness and her testimony helped convince a grand jury to formally charge Strauss-Kahn and a judge to hold him under house arrest with onerous bail terms.

But the case has teetered since late June when prosecutors disclosed she fabricated being gang-raped for her U.S. asylum application and lied about other aspects of her past.

Those revelations threatened her credibility as a witness and led prosecutors to agree to release Strauss-Kahn from house arrest, though he remains barred from leaving the country. He faces up to 25 years in prison if convicted.

Diallo and her lawyers have fought their case publicly, keeping the pressure on District Attorney Cyrus Vance to continue. While the identity of alleged rape victims is usually shielded, Diallo granted interviews to Newsweek magazine and ABC television, and she held a tearful news conference where she gave her version of events and said she could not sleep.

Her lawyer has requested a special prosecutor to pursue the criminal case, though legal experts said such a move would have little chance of succeeding.

Strauss-Kahn was due to appear in court on Tuesday, at which point the dismissal of charges could be a mere formality if prosecutors make public their decision on Monday.

Even if the case is dismissed, Strauss-Kahn's legal troubles will be far from over. He still faces a civil lawsuit filed by Diallo on August 8 and a complaint from French writer Tristane Banon who said he tried to rape her during a 2003 interview. Authorities in Paris are considering whether to press charges in that case.

Yet his political fortunes may revive. Frontrunner for the socialist party nomination for president, Francois Hollande, said on Monday that Strauss-Kahn could hold public office if the sexual assault charges are dropped, and that it was up to the former IMF chief to decide whether he would run in the October party primaries. [ID:nLDE77L066]

"Whatever has been said, a man with the abilities of Dominique Strauss-Kahn can be useful to his country in the months and years to come," Hollande told France Inter radio.

Reports that the New York State's case was folding were rife over the weekend. The New York Times, citing a person briefed on the matter, said Manhattan District Attorney Vance has decided to ask a judge to dismiss the charges.

Diallo's credibility was harmed by her failure to disclose her past inconsistencies promptly and willingly, the Times reported, citing a law-enforcement official involved in the investigation.

Further revelations could hurt her credibility, The New York Post said citing two sources briefed on the document Vance's office has prepared after a deeper investigation.

"There are going to be bombshells," the Post quoted one source as saying.

While her lawyer Kenneth Thompson has acknowledged problems with Diallo's past, he has stressed that she never waivered in her story of a naked Strauss-Kahn emerging from the bathroom and violently sexually assaulting her. Women's groups and hotel workers have said such assaults are not uncommon for maids.

Strauss-Kahn's lawyers have suggested any sex was consensual.

Though Strauss-Kahn is free to return to French politics, his image was damaged and the Socialist party would have to make an exception to now allow him into the presidential race.

A poll released in July showed two-thirds of French people do not want him to be a candidate. (Additional reporting by Joseph Ax and Noeleen Walder; Editing by Anthony Boadle)