By Gérard Bon
PARIS (Reuters) - Conservative presidential candidate Francois Fillon's woes piled up on Thursday when France's financial prosecutor chose to pursue a probe into the fake-work scandal that has dogged him, and as far-right rival Marine Le Pen gained in the polls.
Two polls showed Fillon, once the front runner, being knocked out in the first round of the two-part vote.
Prosecutor Eliane Houlette said after receiving a police report that she was keeping open an investigation into the Fillon jobs scandal.
Fillon's status as favorite to win the presidency in May has evaporated in the past three weeks over whether or not his wife did real work for hundreds of thousands of euros in taxpayers' money when she was paid as his assistant.
The issue has also sown concern among investors that the anti-Europe, anti-euro Marine Le Pen of the National Front could win the presidency. She has moved up in the polls but remains well behind.
"It is my duty to affirm that the numerous elements collected (by investigators) do not, at this stage, permit the case to be dropped," Houlette said in a statement after receiving an initial police report on whether public funds were misused.
Houlette did not announce further steps in a case becoming known as "Penelopegate" after Fillon's British wife.
Among Houlette's choices are dropping the case, taking it further by appointing an investigating magistrate, or sending it straight to trial.
A source close to the case said it now looked unlikely that the financial prosecution service, set up under President Francois Hollande in 2013, would drop the case.
Fillon's camp has challenged the legitimacy of the probe.
The candidate reiterated his criticism of the prosecutor's conduct in comments to the conservative newspaper Le Figaro on Thursday, saying she had added to the "media circus" surrounding the affair.
He also told Le Figaro that he remained as determined as ever to continue the election campaign he began in November after winning a primary contest.
Fillon, 62, has said he would step down as The Republicans' candidate if he were put under formal investigation - a step that would be the decision of an investigating magistrate, but which could take months or years.
He has so far faced down a rebellion among fellow conservative lawmakers who want to appoint a new candidate, but there are still rumblings about his unsuitability.
Bruno Le Maire, Fillon's adviser on international affairs, told Reuters Fillon was the mainstream right's only chance.
"Does it (the right) want to win or does it want to lose?," he asked. "If it wants to win it must rally behind the candidate who won so emphatically in the primaries."
LE PEN ADVANCE
Polls tip Le Pen to win the April 23 first round but then lose to independent centrist Emmanuel Macron in a May 7 run-off vote. Macron has been favorite to win the presidency since the Fillon scandal broke on Jan. 25.
Although the two polls on Thursday confirmed Fillon was set to be knocked out in the first round, the margin between him and Macron remains tight.
According to a daily Opinionway poll, should Le Pen face scandal-hit Fillon in that second round, the predicted margin of her defeat was the smallest this year predicted by a major polling organization.
The polls showed her getting 43 percent of the vote. Against Macron, she would pick up only 38 percent, the poll showed. ].
(Additional reporting by Yves Clarisse and Ingrid Melander; Writing by Andrew Callus; Editing by Sudip Kar-Gupta and Richard Balmforth)