* ANC policy conference to be held June 30-July 5
* Reform agenda to lay ground for Zuma succession battle
* Frontrunners Ramaphosa, Dlamini-Zuma differ in views
* ANC becoming increasingly divided
JOHANNESBURG, June 29 (Reuters) - South Africa's ruling ANC meets this week to debate the future of a country mired in recession, corruption and political deadlock, but proceedings may be overshadowed by a power struggle between rivals seeking to succeed President Jacob Zuma.
Critics charge that under Zuma, the ANC idealism and ethics epitomised by Mandela have been replaced by a relentless scramble for power, dividing the party and tarnishing the reputation of the post-apartheid "Rainbow Nation". Popular support has slumped.
Zuma will be replaced as ANC leader at a national conference in December with Deputy President Cyril Ramaphosa and former African Union chair and Zuma's ex-wife Nkosazana Dlamini-Zuma widely viewed as frontrunners. The six-day conference beginning on Friday should offer clues to who may be in the ascendant.
"The conference will be a key event this year, with policy change used to drive a factional wedge in the party on macro, land reform and financial sector transformation," said Nomura emerging market analyst Peter Attard Montalto.
"We expect it to represent the real starting gun for factional alignments into Decembers elective conference."
Zuma has drawn unprecedented criticism from senior ANC members in recent weeks. A shock cabinet reshuffle prompted ratings agencies to downgrade South Africa to "junk" status, the economy slid into recession and unemployment hit a 14-year high.
The party is now split between factions broadly aligned to Dlamini-Zuma and Ramaphosa. Analysts mostly think the party will hold together, although a breakaway is possible should Dlamini-Zuma lose in December.
Dlamini-Zuma's camp is expected to push for the expropriation of land without compensation and greater black ownership of businesses as part of a broader drive to defeat the "enemy" of "white monopoly capital".
The government says only 8 million hectares of arable land has been transferred to black people since 1994, less than 10 percent of the 82 million hectares available and a third of the ANC's 30 percent target. Dlamini-Zuma's supporters also want to clip the wings of the central bank so that it focuses its mandate on growth, not inflation, and to reform the banking sector to promote black interests, including the creation of a state bank.
Ramaphosa's supporters also prioritise wealth redistribution but believe the best strategy is through reforms that grow the economy, encourage investment, create jobs and tackle the corruption that has plagued the ANC under Zuma.
Many investors and ANC members in Ramaphosa's camp are concerned Dlamini-Zuma would continue in the mould of her ex-husband. She says opponents are trying to use her past to undermine her credibility.
Ramaphosa has warned ANC members that if corruption and infighting rife under Zuma are not tackled, the party will be unable to arrest the decline that saw it lose control of major cities in local elections last year.
An opposition coalition led by the Democratic Alliance, a traditionally white party that is becoming more inclusive, says it is confident of unseating the ANC at an election in 2019.
"Cyril's main argument to grassroots ANC members is: if you don't choose me, the economy will collapse and we'll lose in 2019 and you'll have nothing," a senior ANC source told Reuters.
"The question is if he can win that ideological argument against an opponent with attractive populist policies and Zuma's well-established party patronage system."
Dlamini-Zuma, who has the support of Zuma and his powerful grassroots Zulu ANC support base, has accused her opponents of being 'anti-transformation' and too cosy with rich whites.
A medical doctor and health minister under Mandela, Dlamini-Zuma has support in rural areas where Zuma is strong. Unionist-turned-business-mogul Ramaphosa has a more urban, middle-class constituency.
Zuma has tried to temper fears over land reform, promising there will be no repeat of the chaos triggered by farm invasions in neighbouring Zimbabwe. Any changes would follow parliamentary procedure.
A new charter raising the threshold for black ownership in mining companies was criticised by investors and industry players who said it was bullied through without consultation.
Signs this month that the central bank's independence is in question have weakened the rand.
Though few major policy changes are expected to be agreed at this week's meeting, the policy agenda will be watched for clues to whose voice - Ramaphosa's or Dlamini-Zuma's - feeds through more clearly in the language.
"Leadership will play its part, even if it is an official no-go area," political analyst Mcebisi Ndletyana said.
"Even if there are no specifics, it will be interesting to see the language agreed. We may get some signals as to what is the dominant faction." (Editing by Ralph Boulton)