By Gérard Bon
PARIS (Reuters) - France's financial prosecutor said on Thursday she would pursue an investigation into fake work allegations surrounding presidential candidate Francois Fillon, dealing a new blow to the ex-prime minister's faltering election campaign.
A three-week-old scandal over whether or not Fillon's wife worked for hundreds of thousands of euros in taxpayers' money paid to her as a parliamentary aide has cost the conservative his status as favorite to win the presidency in May.
"It is my duty to affirm that the numerous elements collected (by investigators) do not, at this stage, permit the case to be dropped," prosecutor Eliane Houlette said in a statement after receiving an initial police report on whether public funds were misused.
She did not announce further steps. Among her 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 be dropping the case.
Fillon, 62, has said he would step down should he be put under formal investigation - a step that would be the decision of an investigating magistrate but which could take months or years.
Fillon's camp has also challenged the legitimacy of the probe.
He has faced down a rebellion among fellow conservative lawmakers who want to appoint a new candidate, but there are still rumblings about his unsuitability.
With the first round of the election less than 10 weeks away, opinion polls make centrist Emmanuel Macron favorite to win the presidency.
Far-right National Front leader Marine Le Pen is tipped to win the April 23 first round, with Macron coming second ahead of Fillon. Second-round polling scenarios show either Macron or Fillon would win the two-person run-off on May 7 against Le Pen.
(Additional reporting by Yves Clarisse; Writing by Andrew Callus; Editing by Sudip Kar-Gupta and John Stonestreet)