(recasts, updates with arrests)

By Felix Onuah

ABUJA, April 13 (Reuters) - Nigerian President Olusegun Obasanjo promised a free and fair vote on the eve of state elections to be held on Saturday, while European Union observers expressed fears about their transparency.

Voters in Africa's most populous nation go to the polls on Saturday to elect state governors and lawmakers, and return a week later to choose a successor to Obasanjo, who must step down after serving the maximum two terms.

"From all indications, the Independent National Electoral Commission (INEC) ... have concluded all necessary arrangements to ensure a peaceful, free, fair and transparent exercise," Obasanjo said in a nationwide television and radio address.

European Union observers called on the government to urgently correct a big shortfall in accreditation cards for observers from Nigerian civil society.

"Comprehensive observation by civil society organisations is a key ingredient contributing to a transparent and credible election process and fostering an atmosphere of confidence among stakeholders and voters," the EU observers said in a statement, adding that they were concerned about the situation.

Dozens of people have been killed in political violence in the months leading up to the polls, which should lead to the first fully democratic transition since independence in 1960.

Power transitions in Nigeria, where most people live in absolute poverty, are normally violent because elected offices come with control over a slice of the country's $40 billion oil income and endemic corruption means much of this is looted.

STAY HOME

Obasanjo told Nigerians to limit their travel during election days and stay home at night to curb violence and fraud.

"The Federal Government will leave no stone unturned in vigorously checking and sanctioning any acts of violence and thuggery," he said.

Obasanjo accused "highly placed individuals" of fomenting crisis and vowed to come down heavily on trouble-makers. Rights groups have accused the government of meddling in the electoral process to favour the ruling People's Democratic Party (PDP).

Dozens of mostly opposition candidates have been excluded from the race on the grounds of controversial fraud indictments, which diplomats say cast doubt on the credibility of the poll.

The opposition Action Congress party said thousands of its supporters and several candidates had been detained in five states as part of a plot by Obasanjo and the PDP.

Its presidential candidate, Vice President Atiku Abubakar, has been disqualified for a fraud indictment that he is still contesting in the courts.

"The mass arrests and detention of AC candidates and supporters is part of the grand design by the presidency and the PDP to rig Saturday elections even before they are held," the party said in a statement.

The PDP has chosen a retiring state governor, Umaru Yar'Adua, as its presidential candidate. The main challenger is former army strongman Muhammadu Buhari for the opposition All Nigeria People's Party.

Nigeria, the world's eighth biggest oil exporter, returned to civilian rule with Obasanjo's election in 1999 after three decades of almost continuous army rule. (Additional reporting by Tom Ashby in Abuja, Tume Ahemba in Lagos)

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