By Gopal Sharma

KATHMANDU, July 19 (Reuters) - Nepal was set to elect ts first president on Saturday, from a marginalised ethnic community whose violent demand for a greater say in running the government once threatened a peace deal with Maoist former rebels.

Nepal abolished its 239-year-old monarchy and became a republic under a 2006 deal with the rebels, who ended their decade-long civil war and scored a surprise win in an election in April for a special assembly to write a constitution.

But the peace pact was threatened by an unrest in the country's southern plains bordering India, where ethnic Madheshi groups began protesting against their marginalisation. At least 50 people were killed in those protests.

Though a ceremonial post, the election of a Madhesi president is seen as a formula to appease the marginalised group and enlist its support for a new coalition possibly headed by former rebel chief Prachanda.

All three candidates for the post hailed from the Madhesh region, also called the Terai.

Among the candidates is a 73-year-old republican, Ramraja Prasad Singh, who masterminded a series of bomb blasts in Nepal, including attacks on the parliament and the royal palace in 1985.

"Having a Madheshi president is in itself a pride for our community and we feel honoured," said Rajesh Ahiraj, editor of the weekly Madheshvani. "This is an initial indication that the nation is becoming inclusive."

Fertile Madhesh, or Terai, is home to nearly half of Nepal's 26.4 million people and is the impoverished nation's breadbasket as well as business and industrial hub.

Ethnic Madheshis are culturally and linguistically closer to the Indians living across the border than those coming from Nepal's hills or mountains.

They say they are discriminated against by the government dominated by the people from the hills in terms of jobs including the army, representation in parliament, judiciary and other state institutions.

"The new president and government must inject among all people, including the Madheshis, the feeling that the nation belongs to them," Ahiraj said. "Failure to do this can give rise to more unrest."

Officials said 594 members of the special assembly were eligible to vote for the president in a secret ballot and the winner must garner the support of at least 298.

The election of the president will pave the way for the Maoist former guerrillas to form a new government, three months after they emerged the largest group in the assembly polls.

The Maoists say they are in talks with other political parties for support, as they do not have parliamentary majority. (Editing by Krittivas Mukherjee and Alex Richardson) (For the latest Reuters news on Nepal see: http://in.reuters.com, for blogs see http://blogs.reuters.com/in/)

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