By Steve Holland and Jonathan Allen

WASHINGTON/NEW YORK (Reuters) - Hillary Clinton will announce her second run for the presidency on Sunday, starting her campaign as the Democrats' best hope of fending off a crowded field of lesser-known Republican rivals and retaining the White House.

The overwhelming favorite for the Democratic presidential nomination, Clinton will nonetheless face multiple challenges as she returns to the campaign trail seven years after losing the nomination in 2008 to Barack Obama.

She has been a high-profile figure in American politics for more than two decades since her husband, Bill Clinton, won the presidency in 1992, and her fame still eclipses the other likely Democratic contenders and Republican opponents.

But with the fame comes a set of challenges Clinton will need to overcome in the coming months. She will try to get past a controversy over her use of personal email while secretary of state, and find a way to connect with ordinary Americans after her years as the top U.S. diplomat.

Her advisers, including her husband, have urged her to take nothing for granted, arguing voters would be repelled by anything that resembles a pre-ordained coronation.

A Democrat close to the Clinton camp told Reuters on Friday that Clinton, who is also a former U.S. senator, would announce her long-anticipated plans through video and social media.

After the announcement, she will travel to the early voting states of Iowa and New Hampshire, said the source, who asked to remain unidentified.

A representative for Clinton declined to comment.

Clinton, 67, has sounded out potential campaign themes during public appearances, casting herself as both a love-filled new grandmother with a vested concern in the future and a wise former diplomat who understands how countries thrive and fail.

In contrast to her 2008 campaign, Clinton has shown signs she will not play down how being a woman distinguishes her from the 44 men who have served as U.S. president.

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She has filled speeches with paeans to the moral and economic importance of gender equality and women's rights, arguing that economic growth, the health of the middle class and the stability of foreign peace treaties all hinge on reducing gender discrimination.

"Just think about all the hard-working families that depend on two incomes to make ends meet," Clinton said in a paid speech at a conference for women technology executives in California's Silicon Valley, citing her own experience of raising a young daughter while working as a partner at an Arkansas law firm in the 1980s. "When one is short-changed, the entire family suffers."

What this might mean in terms of policy proposals is vague, although Clinton said in the same speech she was "embarrassed" that the United States remained one of the few countries where there is no national right to paid family leave.

There are a dozen or so likely Republican contenders vying for the presidency, many still relatively unknown. Clinton has a different task: reassuring voters who already like her and wooing those who do not.

Only 2 percent of Americans say they have never heard of her, according to a Gallup poll last month, a level of name recognition exceeding that of Vice President Joe Biden, a name unknown to a 10th of Americans.

Her nearest likely rivals for the Democratic nomination, former Maryland Governor Martin O'Malley and Jim Webb, the former U.S. senator from Virginia, struggle to get a fraction of Clinton's media coverage, favorable poll numbers and donations.

Clinton's use of social media to announce her White House run amounts to the adoption of tactics deployed by Obama in 2008 to raise large sums through small donations and appeal to young voters.

Also on Friday, Clinton released an update to her memoir, "Hard Choices," in which she described her final days as secretary of state and her feelings about her first grandchild.

CONTROVERSY AND CRITICISM

Clinton has been a target for Republican criticism since Bill Clinton's first presidential campaign. He promised voters then that they would get "two for one" by putting them both in the White House, but quickly dropped that claim when it proved unpopular.

Hillary Clinton's biggest initiative while her husband was president, national healthcare reform, fell apart without coming to a vote in Congress.

She became a figure of public fascination, and admiration in some quarters, for standing by her husband when allegations of his sexual infidelities first surfaced during his 1992 presidential campaign, and again in 1998 when his affair with White House intern Monica Lewinsky surfaced.

Both the Clintons have been investigated repeatedly by Republican lawmakers and the then United States Office of the Independent Counsel.

As Hillary Clinton prepared to start her campaign, she faced criticism from Republicans for using only a personal email account while secretary of state, and for the Clinton Foundation's reliance on donations and payments from foreign governments for its philanthropy work abroad, even as she served as the country's top diplomat.

Clinton has said she should have used a government email account as secretary of state while insisting that she had violated no rules.

During the campaign, Clinton will be expected to say whether she will more closely align with the centrist economic policies of her husband's administration or the populist policies championed by the progressive wing of her party.

Some Democrats have urged Senator Elizabeth Warren of Massachusetts, a leader of the party's liberal wing and a critic of Wall Street and big banks, to challenge her, but Warren has declined.

(Additional reporting by Lisa Lambert and Amanda Becker; Editing by Grant McCool and Leslie Adler)