* Somalia, Afghanistan seen most corrupt among 180 nations
* New Zealand, Denmark have best scores in watchdog ranking
* United States, Russia make gains, Iran's score dips
By Noah Barkin
BERLIN, Nov 17 (Reuters) - Public sector corruption in Afghanistan has worsened over the past two years and is now seen to be more rampant than in any country apart from Somalia, according to Transparency International.
Releasing its annual Corruption Perceptions Index (CPI) on Tuesday, the watchdog said Afghanistan had sunk for the second straight year in its ranking of 180 nations based on perceived levels of corruption in the public sector.
The report highlights the dilemma for western governments, including the United States, which are reviewing their strategies for stabilising the country following the re-election of President Hamid Karzai in a vote plagued by fraud.
"Examples of corruption range from public posts for sale and justice for a price to daily bribing for basic services," the watchdog said of Afghanistan. "This, along with the exploding opium trade -- which is also linked to corruption -- contributes to the downward trend in the country's CPI score."
The CPI scores countries on a scale of zero to 10, with zero indicating high levels of corruption and 10, low levels. The ranking is based on data from country experts and business leaders at 10 independent institutions, including the World Bank, Economist Intelligence Unit and World Economic Forum.
For the third year running, the conflict-ridden east African nation of Somalia came in last, this time with a score of 1.1.
Afghanistan had the second-worst ranking at 1.3, down from 1.5 in 2008 and 1.8 in 2007. Myanmar followed with a score of 1.4, while Iraq and Sudan were both on 1.5.
New Zealand was the top-ranked country with a score of 9.4, followed by Denmark at 9.3, and Singapore and Sweden, both on 9.2. Click for a table of the rankings.
IRAN RANKING SLIDES
The Afghan government bowed to western demands and announced on Monday that it would form a new anti-corruption unit to investigate high-level graft.
President Karzai has been under intense pressure from NATO countries with troops in Afghanistan to root out corruption and mismanagement in his government, which has complicated the fight against Taliban insurgents. Violence has reached its deadliest levels since the Taliban was forced from power in 2001.
In Somalia, fighting since the start of 2007 has killed about 19,000 civilians, uprooted 1.5 million from their homes and confined a weak central government to a few blocks of the capital Mogadishu.
"Fragile, unstable states that are scarred by war and ongoing conflict linger at the bottom of the index," TI said.
Countries which saw their ranking drop included Iran, which fell to 1.8 from 2.3 following a presidential election in June that the opposition said was rigged.
Political turmoil also contributed to a fall in Ukraine's score to 2.2 from 2.5. Greece saw its score slide to 3.8 from 4.7, reflecting insufficient anti-corruption enforcement, lengthy delays in the judicial process and a string of corporate scandals that TI said pointed to "systemic weaknesses".
Nations that improved included the United States, which rose to 7.5 from 7.3. TI cited Washington's swift response to the financial crisis, including reforms demanding greater transparency and accountability.
Poland rose to 5.0 from 4.6 after establishing an anti-corruption office. Russia edged up to 2.2 from 2.1, a rise attributed to anti-corruption legislation introduced by President Dmitry Medvedev. But TI noted that the excessive role of the Russian government in the economy remained a problem.