British PM Cameron's Conservatives lead Labour as UKIP falls - poll

(Adds approval ratings for leaders, details on UKIP decline)

LONDON, April 11 (Reuters) - British Prime Minister David Cameron's Conservatives took a two percentage point lead over the opposition Labour Party as support for the UK Independence Party fell ahead of the May 7 general election, an Opinium survey showed.

The closest British election in a generation has flummoxed seasoned politicians, diplomats and financiers who are poring over opinion polls and Westminster seat predictions to see who might rule the $2.8 trillion economy.

Opinion polls indicate neither the Conservatives nor Labour will win an overall majority in the 650-seat parliament as surveys show millions of voters are flocking to once marginal parties, especially in Scotland and England.

The poll for the Observer newspaper, put the Conservative Party up three points on 36 percent and the Labour Party up one point on 34 percent.

But significantly for the Conservatives, who have seen millions of their core voters flirt with the UK Independence Party (UKIP) led by Nigel Farage, support for UKIP fell three points to 11 percent, the lowest level in the poll since 2012.

Support for UKIP, which wants Britain to quit the European Union, to slash immigration and to return Britain to what supporters say was once a proud self-governing nation, has declined in some other recent national polls.

The net approval rating for Farage, a 51-year-old former metals trader who told Reuters last month that Cameron's party might win the most seats, fell seven points to minus 20 percent.

The Liberal Democrats were unchanged on 7 percent, Opinium said in a statement, while the Scottish National Party (SNP), which wants Scotland to become independent, was unchanged on 4 percent.

The UK-wide result for the SNP hides a significant strength in the first-past-the-post electoral system: Their support is all concentrated in Scotland.

A forecast based on a YouGov (LSE: YOU.L - news) poll on Friday showed the SNP would win up to 53 of the 59 seats in Scotland, which could give the nationalists a kingmaker position in the next parliament.

Labour, which in 2010 won 41 of the 59 seats in Scotland, admits that a strong showing for the SNP could scupper Labour leader Ed Miliband's chances of ousting Cameron as prime minister.

The Opinium poll, carried out between April 8 and 9, showed that Cameron's personal net approval rating was plus 2 percent, while Miliband's rating had fallen three points to minus 18 percent.

Liberal Democrat leader Nick Clegg's rating dropped from minus 30 percent to minus 33 percent.

(Reporting by Guy Faulconbridge; editing by Kate Holton)