* Correa wants Britain to withdraw 'threat' to raid embassy
* Says WikiLeaks founder can stay in building 'indefinitely'
By Eduardo Garcia
QUITO, Aug 21 (Reuters) - Ecuador is ready to negotiate over the fate of Julian Assange if Britain withdraws a threat to raid its embassy in London where the WikiLeaks founder has sought refuge, President Rafael Correa said on Tuesday.
Ecuador was incensed by a veiled British threat to enter the embassy to arrest the 41-year-old former computer hacker, who is trying to avoid extradition to Sweden, where he is wanted for questioning over allegations of rape and sexual assault.
Correa has offered Assange asylum and told Britain to let him leave the embassy and fly to the South American country. The leftist leader said Assange, who has been in the building for nine weeks, was welcome to stay there "indefinitely," but also said he was open to discussions.
"Despite that rude, impertinent and unacceptable remark we're still open to dialogue," Correa told reporters in the coastal city of Guayaquil.
"We don't expect an apology, but of course we expect Britain to retract the extremely serious mistake they made when they issued the threat that they could violate our diplomatic mission to arrest Mr. Julian Assange."
Foreign ministers from across Latin America broadly backed Quito's position as the government rallied regional support at a series of high-level meetings in Ecuador over the weekend.
Correa says he shared Assange's fears that from Sweden he could be further extradited to the United States and face charges there. His WikiLeaks website published a barrage of secret army documents and diplomatic cables in 2010 that exposed Washington's power-broking around the world.
Correa has portrayed the saga as a struggle between a small country and "imperialist" powers, the United States and Britain.
Local analysts say that playing up the "colonial" angle helps burnish Correa's anti-U.S. credentials and could lift his ratings. It also plays well with his ally Venezuela's socialist President Hugo Chavez, the biggest critic of Washington in the region.
Correa, a 49-year-old economist, has become popular with many Ecuadoreans by building hospitals and schools, and for programs of cash handouts for the poor. He is well placed to win re-election next year if -- as widely expected -- he runs.
MICROWAVE AND A TREADMILL
Ecuador has said it might take the dispute over Assange to the International Court of Justice in The Hague.
But it wants to convince London that it should let the Australian citizen travel to Ecuador, or give him written guarantees that he would not be extradited to the United States. Correa's government says there have been no talks since Aug. 15.
Assange, whose platinum hair and friendships with the rich and famous have helped make him a global celebrity, spoke from the balcony of the embassy on Sunday. He denounced what he called a U.S. "witch hunt" targeting him, but did not mention the accusations made against him by two women.
That omission infuriated many in Sweden, who say the sex crime allegations by two WikiLeaks supporters in 2010 have played second fiddle to unwarranted theories of a U.S.-led conspiracy to extradite Assange with the help of allies in Europe.
Correa said Ecuador never intended to stop Assange from facing justice in Sweden. "What we've asked for is guarantees that he won't be extradited to a third country," he said.
The Ecuadorean leader also said his nation had to improvise to provide Assange with as many home comforts as possible at the diplomatic mission in London's affluent Knightsbridge area, including a bed, microwave, shower and treadmill for jogging.
"Since Mr. Assange has received asylum from the Ecuadorean state, he can stay in the embassy indefinitely," Correa said.
Since taking office in 2007, Correa has often sparred with journalists whom he accuses of trying to undermine his rule. Critics in the media accuse him of muzzling them and behaving like an autocrat.
Earlier this year he won a libel case against three newspaper publishers and a columnist for an article that called him a dictator and alleged he had ordered troops to fire on civilians during a protest. He later pardoned them.
"I wonder what would England do if a journalist, with the permission and complicity of a newspaper, accused the Queen of a genocide?," Correa said when asked about accusations that he has used the courts to silence media critics.
He added that in his domestic disputes with journalists he had only ever been standing up to unscrupulous media bosses.
"We face up to (the likes of) Murdoch in the United Kingdom, who thought that they were above the law until a government came along to implement the law for all," Correa said, referring to the Australian-born media mogul Rupert Murdoch.
Murdoch's British newspaper arm is under investigation for illegally tapping the voicemails of celebrities, sports stars and politicians. There have been more than 60 arrests, including dozens of current and former journalists.