* Two candidates tied in polls, third close behind
* Winner will oversee canal expansion
By Christine Murray and Elida Moreno
PANAMA CITY, May 1 (Reuters) - Panamanians vote for a new president on Sunday in the closest contest in a generation with opponents of President Ricardo Martinelli seeking to thwart the business tycoon's attempt to maintain an indirect grip on power.
Three candidates are just a few points apart in a campaign that has focused more on personality than policy.
Panama is a banking and trading hub and its successful canal has helped fuel the fastest economic growth in Latin America in recent years. Economic and social policies are expected to remain broadly in place whichever of the top candidates wins.
Opinion polls show ruling Democratic Change (CD) party candidate Jose Domingo Arias, whose running mate is Martinelli's wife, neck and neck with moderate leftist ex-Panama City mayor Juan Carlos Navarro of the Democratic Revolutionary Party (PRD).
Just behind in third place is the Panamenista Party's Juan Carlos Varela, the vice-president. Varela's support helped Martinelli to get elected in 2009, but the two later fell out.
Martinelli, a supermarket magnate who won the presidency in 2009, is barred by law from running for re-election.
All three candidates pledge to continue large infrastructure projects, such as expanding Panama City's new metro, and social programs like Martinelli's $120 a month payment to Panamanians older than 70 and outside the social security system.
Instead of promising major policy changes, both Navarro and Varela say they are more transparent than Martinelli, whose administration has had to fend off allegations that the public works boom he presided over was tainted by corruption.
"We will be choosing between two different paths, re-election, imposition and backwardness, that is their way, or democracy, liberty and the future," Navarro said recently.
The election is set to be the closest held in the isthmus nation since a U.S. military invasion in 1989 toppled military strongman Manuel Noriega.
The winner, elected by a simple majority on Sunday, will have to manage strong but slowing growth, adhere to a strict new fiscal responsibility law, and oversee the multi-billion dollar expansion of the Panama Canal, which briefly stalled earlier this year in a dispute with the building consortium.
Navarro and Varela both represent older Panamanian parties, while the CD is seen by many as a vehicle for Martinelli.
"People understand that Jose Domingo Arias is essentially there as a front for Martinelli," said Orlando Perez, a Panama expert at Central Michigan University.
Martinelli's wife Marta Linares de Martinelli became the CD candidate for vice president despite the constitution banning anyone closer than a fourth degree blood relation or of second degree "affinity" taking the job.
Martinelli's opponents say this invalidates his wife, but he has rejected the claim. Vowing to keep up his strong public works spending and expand welfare program, the CD aims to be the first party to win re-election in Panama's recent history.
Under Martinelli's watch, Panama's economy has grown at an average rate of 8.2 percent a year. That has narrowed the gap between rich and poor, but many Panamanians still struggle.
"We may have much better infrastructure, the metro, a better economy, but this means nothing if at home we have nothing to eat," said Luis Rodriguez, a 26-year-old nursing student.
Fitch analyst Lucila Broide told Reuters that the election would probably bring policy continuity, but that a contested result could create uncertainty. (Writing by Christine Murray; Editing by Dave Graham and Kieran Murray)
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