* Observers report enthusiastic turnout, no violence so far
* President bids for re-election against ex-military rival
* Corruption, ethnic friction still plague West African state
* Fast-growing economy looks to iron ore, oil development
By Simon Akam and Pascal Fletcher
FREETOWN, Nov 17 (Reuters) - Sierra Leoneans crowded polling stations on Saturday to vote in a close-fought election they hope can rebrand their poor, war-scarred West African state as an emerging democracy with the potential for fast growth from mining and oil.
Election observers reported an enthusiastic turnout from the moment polls opened, with large, eager crowds of voters jostling outside balloting points in schools and other public venues in the steamy seaside capital Freetown and across the nation.
The presidential and parliamentary polls, the third held since the end of the 1991-2002 conflict, pit President Ernest Bai Koroma and his ruling All People's Congress (APC) against challenger Julius Maada Bio, a former junta leader who represents the Sierra Leone People's Party (SLPP).
"I want to vote ... let us have good leaders to develop the country," said Fafata Kamara, a catering worker, clutching her plastic voter registration card in a long line outside the Cardiff Primary School in west Freetown.
The elections are being held amid rising expectations that foreign-run iron ore mining and oil developments can start lifting Sierra Leone's 5.5 million people out of poverty and help the country shed its past image as a "blood diamonds" battleground for rebels and child soldiers.
The vote is expected to be close. Former insurance executive Koroma, 59, who wrested the presidency from the SLPP in a hotly disputed 2007 vote, is considered the narrow favourite above Bio, a 48-year-old retired army brigadier who was involved in two military takeovers in the turbulent 1990s.
Koroma, wearing a white robe, voted in a west Freetown polling station set up in an unfinished building, where he was greeted by supporters chanting "world best, world best!".
"We feel very happy that Sierra Leoneans are motivated to vote," the president said, adding the election had been peaceful so far and praising the presence of international observers.
His rival Bio, also wearing white, cast his ballot outside a west Freetown school, in a makeshift polling station made from blue plastic sheeting and poles, with simple cardboard voting booths.
To win outright, a candidate must gain 55 percent of the vote and the race may well go to a second round. With rivalry between the APC and the SLPP running high, there are concerns a close result could ignite violence.
"I think the whole world is looking at Sierra Leone at the moment," said Jens Anders Toyberg-Frandzen, the United Nations envoy to the country. He called the vote "a turning point in manifesting that Sierra Leone has graduated from a post-conflict country to one that is now on the path to development."
The elections in the former British colony will be one of the most closely observed in Africa this year by monitors from the European Union, the Commonwealth and the African Union.
The chief EU election observer, Richard Howitt, said that apart from some polling stations opening late, there had been no reports so far of any serious disruptions or violence.
"From what I've seen and heard so far, it's been very smooth with a very good turnout," Howitt told Reuters, praising the enthusiasm and good nature of the voters.
Soldiers in crisp new green camouflage and floppy bush hats joined police in trying to control the impatient, shoving lines of voters, some of whom had waited through the night.
At stake is the opportunity to oversee millions of dollars of investment in the aid-dependent country's resources that include gold and diamonds, oil and iron ore.
Iron ore shipments by British companies African Minerals and London Mining are expected to buoy the economy to 20 percent growth this year - below original forecasts of more than 50 percent but still one of the highest growth rates on the planet.
Doubts remain over whether the election winner can root out the graft from Sierra Leone's patronage-driven politics, fairly distribute the mineral wealth and unite a society with deep tribal and political divisions.
In the electoral propaganda battle waged in Freetown's pot-holed streets, APC billboards have sought to emphasise Koroma's performance over the last five years in building new roads, improving the power supply and bringing in foreign investors.
"De Pa Dea Woke (The Father is working)" proclaims one pro-Koroma billboard in the local Krio language.
SLPP posters hail Bio as a "Father of Democracy". His supporters point to his role in handing over to civilian rule more than a decade ago and rebuff accusations from critics who question his military past and democratic credentials.
Although ethnic allegiances still shape Sierra Leone's electoral landscape - Koroma's APC draws support from the Temne and Limba peoples of the north, while the Mende of the south and east traditionally vote SLPP - both candidates face pressure to convert the mineral riches into jobs and improved livelihoods.
But a strong consensus also exists among voters that Sierra Leone must never be allowed to fall back into the violence of the brutal 1991-2002 war, when thousands of civilians had their limbs hacked off by drugged-up bush fighters.
"People are getting aware. People are no more interested in violence ... They have seen that the power of development is through the ballot box, not the bullet," said Alimany Barrie, a 45-year-old army corporal, as he lined up to vote in Freetown.