* PM Erdogan says outside powers seek to undermine him
* Gul under pressure to calm tensions before local elections
* Parliamentary speaker refuses to make file public (Updates with Parliamentary session on the prosecutor report)
By Humeyra Pamuk
ANKARA, March 19 (Reuters) - President Abdullah Gul has dismissed suggestions that outside forces are conspiring against Turkey, openly contradicting Prime Minister Tayyip Erdogan's assertions that a corruption scandal shaking the country is part of a foreign-backed plot.
The graft inquiry swirling around Erdogan's government has grown into the biggest challenge of his 11-year-rule. He has repeatedly cast it as a scheme by political enemies at home and abroad to damage him ahead of March 30 local elections.
"I don't accept allegations about foreign powers and I don't find them right ... I don't believe in these conspiracy theories as if there are some people trying to destroy Turkey," the Hurriyet newspaper quoted Gul as telling reporters during a visit to Denmark.
"Of course Turkey has its long-standing opponents in the world. Certain groups have praised our work for the past 10 years... Now that they are criticising us, why is this an issue? These types of comments are for third world countries," he said.
Turkey's rapid growth into a major emerging market has largely been based on the stability brought by Erdogan's firm rule over the last decade. But the past several months of political uncertainty have unnerved investors, helping send the lira currency down sharply.
Gul co-founded the ruling Islamist-rooted AK Party with Erdogan and has remained a close ally. But he is viewed as a more conciliatory figure than the combative prime minister and their relations have at times appeared strained.
"The political atmosphere we are in is not making any of us happy. It doesn't make me happy. I am both troubled and saddened by the things we are going through," Gul was quoted as saying.
Gul has been under growing pressure from both within and outside Turkey to calm tensions generated by the graft scandal and is seen as a potential successor to Erdogan as prime minister and head of the AK Party, should Erdogan decide to run for the presidency in an August vote.
He and Erdogan had appeared to have closed ranks since the graft scandal erupted in December, with Gul approving controversial laws tightening Internet controls and giving the government greater influence over the judiciary - moves seen by Erdogan's critics as an authoritarian response to the probe.
The long-running investigation became public on Dec. 17 when police detained the sons of three cabinet ministers and businessmen close to Erdogan. The three ministers resigned a week later, while others were removed in a cabinet reshuffle.
Parliament, currently in recess, reconvened for an extraordinary session on Wednesday at the request of the opposition, in an effort to have the prosecutor's report with allegations against the ministers made public under parliamentary privilege.
But the parliamentary speaker rejected opposition pleas for a readout of the report, a version of which emerged last week as part of a string of leaks on Twitter.
The report includes transcripts of wiretapped phone conversations, pictures from physical surveillance and pictures of official documents accusing four former ministers and two of their sons of involvement with an Iranian businessman in a bribery and smuggling racket.
Reuters could not verify the authenticity of the documents and the former ministers have denied any wrongdoing.
"Those who take bribes, those who do gold smuggling are being protected," said Oktay Vural, an opposition MP from the nationalist MHP party, as he waved what appeared to be a printed copy of the widely circulated Internet version.
Erdogan himself has repeatedly denied any suggestion of corruption and has accused his former ally, U.S.-based Islamic cleric Fethullah Gulen, of orchestrating the graft investigation through a "parallel state" of his supporters in the judiciary and police. Gulen denies the allegations.
The opposition's attempt to make the prosecutors' file public comes less than two weeks before the country votes in local elections, which are being seen as a litmus test of how far the scandal has damaged Erdogan's AK Party.
While analysts expect it to remain the biggest party, opinion polls diverge widely, showing it attracting anywhere between 30 and 50 percent of the vote.
The latest survey from one pollster, Konsensus, showed the AK Party would narrowly win the mayoral race in Istanbul but cede control of the capital Ankara to the main opposition CHP.
SONAR, another pollster, forecast the AK Party would hold on to both of Turkey's largest cities but fail to seize control of the western city of Izmir, a stronghold of the CHP. (Additional reporting by Jonny Hogg; Writing by Daren Butler; Editing by Nick Tattersall and Mark Trevelyan)