* Opposition boycott means fewer than half of districts are being contested
* Threat of further violence could keep voters away
* Impasse between two dominant parties fuels worries of economic stagnation
By Serajul Quadir and Nandita Bose
DHAKA, Jan 5 (Reuters) - Bangladesh holds a parliamentary election on Sunday, a contest boycotted by the main opposition, marred by violence that has killed more than 100 people and shunned by international observers.
Polls were due to open at 8 a.m. (0200 GMT) and close at 4 p.m., although with fewer than half of the 300 parliamentary seats being contested, the ruling Awami League was poised to sweep to victory.
The opposition Bangladesh Nationalist Party (BNP) urged voters to stay away from the "farcical" election.
The impasse between the country's two dominant parties, which shows no sign of easing, undermines the poll's legitimacy and is fuelling worries of economic stagnation and further violence in the impoverished South Asian nation of 160 million.
Either Prime Minister Sheikh Hasina or BNP chief Begum Khaleda Zia has been prime minister for all but two of the past 22 years and the two are bitter rivals.
"These elections are in no way going to help resolve the stalemate we have seen in the past few months," said Iftekhar Zaman, executive director of global anti-corruption body Transparency International in Bangladesh.
"The parliament which will emerge will be one without an opposition and so there will be a very big legitimacy crisis."
Turnout was also likely to be crimped by fears of violence. More than 120 polling places have been set ablaze since Friday, an election commission official told Reuters. Much of the unrest has been in rural areas.
The election commission sent a text message on Saturday to voters saying their security was ensured and urging them to turn out. "Please go to cast your vote without any fear and hassle," it said.
Army troops have been deployed since Dec. 26 to maintain order during the election.
The BNP is protesting against the prime minister's scrapping of the practice of having a caretaker government oversee elections. Many of its leaders are in jail or in hiding.
The Awami League says the interim government system has failed in the past.
The country's $22 billion garment industry, which accounts for 80 percent of its exports, has been disrupted by transportation blockades ahead of the election.
The European Union, a duty free market for nearly 60 percent of Bangladesh's garment exports, has refused to send election observers, as have the United States and the Commonwealth, a grouping of 53 mainly former British colonies.
Mohammad Selim, a rickshaw puller from the Jatrabari area of Dhaka, said that although he was frustrated by the one-sided nature of the election, he still planned to vote.
But Mohammad Mostafa, from the northern district of Rangpur, said he felt no urge to go home from Dhaka and cast his vote. "This year, it seems to me meaningless." (Additional reporting by Ruma Paul; Writing by Tony Munroe; Editing by Ron Popeski)
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