* Flaherty was named Conservative finance minister in 2006
* Outspoken critic of euro zone debt crisis, deficits
* He will now return to the private sector
* Suffers from rare skin disease that limited activity
OTTAWA, March 18 (Reuters) - Canada's straight-talking finance minister, Jim Flaherty, is stepping down after eight years overseeing an economy that fared better than most in the global financial crisis but before he reached his goal of balancing the government's books.
Flaherty, 64, announced his resignation on Tuesday after months of speculation he would step down to attend to his health. He suffers from a rare skin disease that has forced him to dramatically reduce his public appearances and travel.
He denied his resignation had anything to do with his health, and he said he plans to return to the private sector.
He had been finance minister since the Conservative Party took power in February 2006, and is the third-longest serving finance minister in Canadian history.
"In my time as finance minister, I am proud of the work I have done to help manage the deepest economic challenge to face Canada since the depression of the 1930s and ensure Canada emerged stronger and as a recognized economic leader on the international stage," Flaherty said in a written statement announcing his resignation.
There was a flurry of speculation in mid-2013 that he would be forced to step down as finance minister but Prime Minister Stephen Harper confirmed him in the job in a July 15 cabinet shuffle.
Flaherty had said publicly he wanted to stay in his job until eliminating the government's budget deficit, and in his budget last month he laid out a path to accomplish that goal by next year, ahead of an election scheduled for October.
He introduced broad tax cuts early in his term, priming the economic pump just before the start of the global credit crisis.
As the crisis deepened, he shrugged off his conservative instincts and introduced massive government stimulus measures to soften the blow on the economy, pushing the federal budget into deficit for the first time in 11 years and winning praise for helping the country bounce back from recession quickly.
On the world stage, Flaherty was a harsh critic of euro zone countries for their handling of the debt crisis and he persistently needled his Group of Seven counterparts to rein in their budgets.
His blunt criticism earned him a reputation among his European counterparts. European Union Economic and Monetary Affairs Commissioner Olli Rehn joked at one point that he has a "Flaherty Index" on the EU's prospects, based on how much grief he was getting from Flaherty at international meetings.
A FADING STAR
But Canada's economic star power has faded recently as economic growth has been held back by sluggish exports and lack of business investment.
During his tenure, Flaherty also had to grapple with an overheated housing market and record-high personal debt levels. He tightened mortgage lending rules four times and both problems have shown signs of easing.
He was not shy to take an unpopular stance, and in 2006 he roiled markets and received death threats after breaking a campaign promise with a surprise decision to tax income trusts, an attractive type of investment vehicle.
He again defied market expectations in May when he named Stephen Poloz as the new Bank of Canada governor rather than giving the job to the man most thought would get it, second-in-command Tiff Macklem. And in 2010, he hosted the G7 finance ministers in the Arctic town of Iqaluit, brushing off naysayers who fretted about severe weather and travel problems.
Flaherty has kept a lower profile since January 2013, when he revealed he was suffering from a rare autoimmune disease called bullous pemphigoid, which causes itching and painful blisters mostly on the abdomen, back, arms and legs. The medication he takes to combat the disease can have side effects such as weight gain and mood swings.
"I am happy to report that I am on the road to a full recovery and the decision to leave politics was not related in any way to my health," Flaherty said on Tuesday.
"This decision was made because it is the right one for me and my family at this time."
Flaherty is known for his quick wit and combative style in parliamentary debates. He says he learned to be tough as a young hockey player and has carried that trait over into his political career.
Married and the father of grown-up triplet sons, Flaherty hails from an Irish-Canadian, Catholic middle class family and always dons a green tie for big announcements.