* Damaged reservoir "beyond repair" - state secretary
* 500,000 cubic metres of toxic sludge still in reservoir
* Alkaline dust in disaster-hit area gets airborne
* Factory says could become unviable within 1-2 days
(Adds dust getting airborne, dead fish)
By Gergely Szakacs
BUDAPEST, Oct 10 (Reuters) - Workers raced to build an emergency dam in western Hungary on Sunday as cracks in a reservoir widened, threatening to unleash a second torrent of toxic sludge on the village of Kolontar and nearby rivers.
About one million cubic metres of the waste material leaked out of the alumina plant reservoir into villages and waterways earlier this week, killing seven people, injuring 123 and fouling rivers including a local branch of the Danube.
Nearly a week into the disaster, a person was still missing.
Kolontar was evacuated on Saturday after cracks appeared in the northern wall of the reservoir, threatening a second spill of the toxic red sludge, which swept through neighbouring areas on Monday, toppling cars and wreaking havoc in houses.
A by-product of alumina production, the thick, highly alkaline substance has a caustic effect on the skin. It contains heavy metals, such as lead, and is slightly radioactive. Inhaling its dust can cause lung cancer.
Late on Sunday the Veszprem county disaster unit advised crews and residents in the area affected by Monday's spill to wear protective masks and glasses as dust levels in some places had exceeded the health limit as the sludge was drying out.
It said the dust can irritate airways due to its alkalinity.
News agency MTI quoted environment state secretary Zoltan Illes as saying a 25-metre-long crack in the weakened wall of the sludge reservoir had widened slightly further by Sunday and the wall now looked beyond repair.
Illes said the northern wall of the reservoir could collapse "within one day or a week" and crews at the scene were scrambling to complete a new dam to protect Kolontar and the nearby town of Devecser, home to 5,400 people.
Illes said authorities had amassed plaster and various types of acids along 100 kilometres (60 miles) of the river Marcal to neutralise the high alkaline content of any new spill before it reaches the Danube, a major European waterway.
The Interior Ministry said on its website samples taken on Sunday showed alkaline levels in smaller rivers affected by Monday's spill, and in the Danube, had returned to normal.
Later on Sunday it added that sporadic dead fish spotted on the Danube near Budapest had drifted downstream from the river Marcal, where the spill destroyed all wildlife.
Gyorgyi Tottos, a spokeswoman for disaster crews, said authorities hoped to complete the 600-metre emergency dam within days to stop 500,000 cubic metres of sludge still in the reservoir from escaping.
RACE AGAINST TIME
"This wall will be able to stop the flow, experts hope to get it done within three days," Tottos said.
"This is a race against time as good weather is forecast for the coming few days but then the rain will come. If we can have the dam finished by the time the rain comes, then it will be all right," she said.
Tottos said the sludge still in the reservoir was thicker than the water-like substance which caused Monday's disaster and authorities expected its spread to be slower and more contained, should a new spill occur.
Monday's spill affected 1,017 hectares. She said the remaining sludge could spread 500 to 1,000 metres from its origin.
Tibor Dobson, spokesman for disaster crews at the scene, said workers had laid the foundation of the new dam in Kolontar. He said the number of people evacuated from Kolontar, which lies closest to the reservoir, had increased to about 1,000.
Prime Minister Viktor Orban has described the torrent of sludge as the worst ecological catastrophe Hungary has suffered.
The nearby town of Devecser remained on alert. The military has sent 319 soldiers and 127 transport vehicles into the town and five trains are ready in case it has to be evacuated.
Dobson said 400-500 people had decided to leave the town voluntarily and at this stage an evacuation was unlikely.
Orban will inform parliament about the findings of an investigation on Monday and promised the "toughest possible consequences" to ensure such a disaster does not recur.
Orban said the government would not decide before Monday whether the MAL Zrt., the company that owns the damaged reservoir, can resume production.
In a statement issued on Sunday, MAL said: "If the alumina factory cannot resume production within the next one or two days, the technical and technological damage could reach a magnitude which can make production impossible in the long run.
"This can cause a loss of markets on a scale, which significantly brings into question the viability of the plant, as well as restoration and damage control".
News agency MTI cited Tamas Szekely, head of the Hungarian chemical industry trade union as saying that shutting down the alumina factory in Ajka would threaten the livelihood of 10,000 people, whose jobs directly or indirectly depend on the factory. (Reporting by Gergely Szakacs, editing by Janet Lawrence)
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