(Adds exit polls in paragraphs 3-6)

By Rupam Jain Nair

SURENDRANAGAR, India, Dec 11 (Reuters) - Millions voted in India's western state of Gujarat on Tuesday in an election that was supposed to be about a booming economy but turned into a war of words over Hindu-Muslim divisions.

Hindu-majority Gujarat is one of India's richest and fastest growing states but also one of its most communally divided. It votes in a two-stage poll that is being closely watched for clues about the fortunes of the country's two main parties.

Television exit polls showed the Hindu nationalist Bharatiya Janata Party (BJP), which has ruled the state since 1995, was in a tight race with the centrist Congress party, which heads the federal coalition.

Eighty-seven seats were at stake in Tuesday's election. NDTV said BJP could lose 14 of the 54 seats it held while Star News put the likely loss at six.

Congress, NDTV said, could gain 13 seats while Star News put the gain at seven. Congress had 30 seats before the election.

Polling for the remaining 95 seats are due to be held on Dec. 16 and results are expected on Dec. 23.

Analysts said the second round of polling would be crucial for the fortunes of the BJP because many of these constituencies have been Hindu nationalist strongholds.

The election started out as a referendum on development, with the BJP boasting it had brought industrial growth and rural prosperity, and Congress trying to attract those who have missed the train.

The gloves came off when Congress leader Sonia Gandhi, who heads the ruling national coalition in New Delhi, called the BJP government of chief minister Narendra Modi "merchants of death" at a rally last week.

CLOSE FIGHT

Modi is accused by critics of turning a blind eye to or actively encouraging Hindu-Muslim riots in 2002 in which between 1,200 and 2,500 people were killed, most of them Muslims.

He swept the elections held later that year after a campaign in which he played on fears about Muslim terrorists and styled himself the protector of Hindus.

In the past week he has returned to his hardline Hindu nationalist agenda while pushing his development record.

"The lotus has to bloom in India," said businessmen Umeshbhai Bavala, 40, referring to the symbol of Modi's party. "He has promised us welfare and we trust him."

Neither side wanted to summon up the ghosts of 2002, Congress because it was scared of alienating the majority Hindu community, Modi because he wanted to portray a more positive image and, perhaps, launch a national career.

"I feel that the Congress is the only party that works for the poor and downtrodden," said 68-year-old Manu Parmar.

"It is high time we threw out the dictator," said Anisa Jam, at 18 a first-time voter. "Innocent Muslims are being targeted and we are hesitant to even speak about it."

Modi landed in trouble last week when he was reported to have justified the extra-judicial killing of a suspected Muslim criminal, a killing which his government has already admitted came about during a staged gun battle.

The independent election commission asked him to explain himself for what seemed to be a violation of its code of conduct.

Modi said he was only responding to Gandhi's "merchants of death" label and both remarks are now under investigation. (Editing by Krittivas Mukherjeem, Y.P. Rajesh and Robert Woodward)

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