* Sarkozy absolved in Bettencourt funding inquiry
* Ex-president faces further legal trouble in Karachi case
* Former supporters vie against Sarkozy in 2017 bid
French magistrates abandoned a long-running party funding investigation against former president Nicolas Sarkozy on Monday, buoying his chances of a political comeback in 2017.
Sarkozy, whom most conservatives want to see lead the centre-right in the 2017 presidential race, was targeted with others in a judicial inquiry into his UMP party's ties with France's richest woman, L'Oreal heiress Liliane Bettencourt.
At issue were allegations that Sarkozy, 58, took advantage of the mental frailty of billionaire Bettencourt to obtain money for his 2007 presidential campaign. He has denied wrongdoing.
Sarkozy thanked supporters on his Facebook page after the decision by magistrates in the southwestern city of Bordeaux.
"Two and a half years of investigation. Three judges. Dozens of police. Twenty-two hours of interrogations and confrontations. Four searches," Sarkozy wrote. "This was the price to be paid so ensure the truth was finally established."
The two investigating magistrates in charge of the investigation decided to pursue their case against former French Budget Minister Eric Woerth, who at the time was treasurer for Sarkozy's UMP, and nine others in the case.
Sarkozy has largely stayed out of the limelight since his defeat to Francois Hollande, but since the start of the year has fanned speculation that he is considering a re-election bid.
Some 62 percent of conservative UMP voters want to see Sarkozy run for the presidency in 2017, according to an Ifop poll published in September.
But while the ruling grants Sarkozy more freedom to intervene in public life, he faces further scrutiny in a series of other legal cases that involve him or those close to him.
They include the so-called "Karachi Affair", a drawn-out corruption case linked to arms sales and a deadly bombing in Pakistan in 2002, and a case involving allegations of influence peddling in an arbitration payout to a high-profile businessman.
A Paris appeals court last week authorised magistrates to investigate whether Sarkozy, then president, violated judicial secrecy in 2011 by publishing a statement which referred to case records that were meant to be kept secret.
Sarkozy denies all wrongdoing.
Magistrates did not disclose publicly why they dropped the case against Sarkozy, who was put under formal investigation in March. Under French law, such a step means there is "serious or consistent evidence" pointing to likely implication of a suspect in a crime.
Such formal inquiries usually lead to trial, but not always.
Legal troubles aside, Sarkozy will struggle despite his popularity with right-wing voters to impose himself as natural leader of his centre-right UMP party, which has barely recovered from a leadership struggle between two former allies.
Former Prime Minister Francois Fillon, once a stalwart supporter of Sarkozy and now a likely electoral rival for 2017, said this week he had no choice but to be "in conflict" with the former president.
"I cannot take on all the consequences of a presidential candidacy and not be in conflict with Nicolas Sarkozy, given his state of mind," Fillon told the JDD weekly paper. "De facto, we are in competition."
The UMP that Sarkozy once ran as a disciplined group has splintered into factions loyal to Fillon and rival party chief Jean-Francois Cope, a Sarkozy ally, with some former supporters saying that Sarkozy should bow out of politics.
After brushing with bankruptcy following Sarkozy's failed re-election campaign, the UMP now faces a serious electoral challenge from the far-right National Front.
The UMP candidate in a local election in southern France gathered only half as many votes as his National Front rival - a bad sign for the party's chances of regaining territory in municipal and European elections next year.