By Peroshni Govender

BLOEMFONTEIN, South Africa (Reuters) - South Africa's ruling African National Congress (ANC) re-elected President Jacob Zuma as its leader on Tuesday, setting him up for seven more years as head of state of Africa's biggest economy.

Nelson Mandela's 100-year-old liberation movement also chose respected businessman Cyril Ramaphosa as his deputy, seeking to repair the image of a Zuma administration battered by corruption scandals and strikes and facing growing discontent among the poor black majority.

More than 4,000 ANC delegates crammed into a marquee in the central city of Bloemfontein erupted into wild cheers when Zuma was confirmed in the top party post after comfortably seeing off a challenge by Deputy President Kgalema Motlanthe.

Given the ANC's dominance at the ballot-box less than two decades after the end of apartheid, 70-year-old Zuma is virtually assured a second, five-year term as President of South Africa in 2014 elections.

The rand briefly edged higher against the dollar, reflecting relief among investors at the prospect of policies remaining largely unchanged.

After the vote, the beaming president, who secured 2,995 votes out of 3,977 cast, walked on stage to shake hands with his fellow 'comrades' - a label reflecting the ANC's roots in the communist-backed struggle against decades of white-minority rule.

Zuma, a polygamous Zulu traditionalist, came to power in 2009 amid the first recession in 18 years and has had a chequered economic record, culminating in violent labor unrest in the mines this year that triggered two downgrades in South Africa's credit ratings.

He has also been dogged by personal scandals, including fathering a child by the daughter of a close friend. Despite this, his popularity within the party is overwhelming.

"I don't care what people say about Jacob Zuma," said Sinovuyo Kley, a delegate from the impoverished Eastern Cape. "When you hear him sing, you know he is one with the people. He speaks our language and knows our struggles."

RAMAPHOSA RETURNS

Zuma's re-election had looked likely for much of the year, making the main talking point of the five-day Bloemfontein conference the political renaissance of Ramaphosa after a decade-long absence to focus on his business interests.

Attention was also diverted by the arrest of four whites on suspicion of a plot to bomb the meeting and execute Zuma and top ministers as part of a plan to carve an independent Afrikaner state out of Mandela's "Rainbow Nation".

Having risen to prominence as a charismatic union leader in the 1980s, Ramaphosa became the ANC's main negotiator in the talks that led to historic all-race elections in 1994 and Mandela's appointment as South Africa's first black president.

He was also tipped as a successor to the revered Mandela - now 94 and recovering in hospital from a lung infection - but gradually removed himself from politics when the job went to party stalwart Thabo Mbeki in 1999.

It was unclear just how much impact Ramaphosa's inclusion in Zuma's inner circle could have on the ANC government.

Some analysts say he should help push through plans to lift long-term economic growth and stop South Africa's competitive slide against fast-growing economies in Asia and South America.

However, others who know his business style told Reuters he tended not to throw his weight around in company board-rooms, suggesting he might avoid challenging South Africa's politically powerful unions.

"He is surprisingly quiet and non-confrontational on boards," one person who knows Ramaphosa said.

Others suggest that his ranking as South Africa's second richest black businessman could limit his appeal to the legions of poor and jobless who are increasingly doubting the ANC's post-apartheid promise to deliver "a better life for all".

LOOMING DOWNGRADE

"Looking further ahead, we remain doubtful that Zuma can oversee the reforms needed to pull the South African economy out of its current rut," said Shilan Shah, Africa economist at UK-based Capital Economics.

There is precious little time to make an impact, with Fitch expected in January to follow Moodys and Standard & Poor's in cutting South Africa's credit rating because of concerns about sluggish growth, forecast at 2.5 percent this year.

"The leadership issue is never really decisive for the market," said Nomura emerging markets analyst Peter Attard-Montalto. "It's always interested in policy and that's far more what the ratings agencies are looking at."

Zuma may also find his Bloemfontein victory dance cut short, with a poll published this week putting his nationwide approval rating at 52 percent, in contrast to 70 percent for the outgoing Motlanthe. This reflects just how much the internal politics of the ruling ANC is insulated from daily realities.

The opposition Democratic Alliance (DA) is starting to make in-roads into ANC support at local and regional level despite its reputation among many black South Africans as the party of white privilege. The DA said it had been inundated with membership inquiries within an hour of Zuma being re-elected.

Even within his own party, young South Africans are snapping at Zuma's heels, demanding political and economic change for a generation that has little memory of apartheid but which remains at the sharp end of 25 percent unemployment.

"The young people of South Africa are tired of promises and need action for economic freedom in our lifetime," the ANC Youth League, which had backed Motlanthe, said in a statement.

(Additional reporting by Jon Herskovitz, David Dolan, and Stella Mapenzauswa; Writing by Ed Cropley; Editing by Pascal Fletcher and Matthew Tostevin)