By Todd Benson and Helen Murphy
CARACAS (Reuters) - Venezuelan President Hugo Chavez pledged to deepen his socialist revolution after a comfortable election victory that could extend his divisive leadership of the OPEC nation to two decades.
The new six-year term clears the way for Chavez, who is recovering from cancer, to consolidate state control over Venezuela's economy, possibly with more nationalizations, and continue his support for left-wing allies in Latin America and around the world.
The victory also cements his status as a dominant figure in modern Latin American history and an icon of the political left. But the slimmer margin of victory - 10 percentage points, down from 25 points in 2006 - reflected growing frustration among Venezuelans at day-to-day problems such as rampant crime and blackouts, which Chavez will be under pressure to tackle.
Tens of thousands of ecstatic supporters celebrated in the streets around the presidential palace overnight, pumping fists in the air after the former soldier was re-elected with 1.5 million more votes than younger rival Henrique Capriles.
"Venezuela will continue along the path of democratic and Bolivarian socialism of the 21st century," Chavez, 58, thundered from the palace balcony, holding up a replica of the sword of independence hero Simon Bolivar.
It was an extraordinary victory for a leader who just a few months ago feared for his life as he struggled to recover from cancer. Turnout was a record 80 percent of registered voters, boosting Chavez's democratic credentials despite critics' depiction of him as an autocrat who tramples on private enterprise and silences political foes.
Supporters dripping with sweat strained to catch a glimpse of Chavez from the street below the palace while dancing and drinking rum. "Chavez, the people are with you!" they chanted.
It was Chavez's remarkable bond with the poor, carefully cultivated over the years by funneling record oil revenues to social programs, that ensured his victory. Throughout the campaign, the president painted his challenger as a right-wing oligarch who would govern only for the rich.
In a nod to the opposition's strong showing, the normally combative Chavez struck a conciliatory note and promised to be more focused in his new term beginning on January 10.
"Today we start a new cycle of government, in which we must respond with greater efficacy and efficiency to the needs of our people," he said, without offering specifics. "I promise you I'll be a better president."
Chavez's victory pushed Venezuelan bond prices slightly lower on Monday in thin trading as some investors unwound bets that Capriles would win. Despite Chavez's anti-capitalist rhetoric, Venezuelan bonds are among the most-traded emerging market debt on Wall Street because they offer high yields.
ALL EYES ON CHAVEZ
A retired lieutenant colonel who first won fame with a failed 1992 coup, Chavez has become Latin America's main anti-U.S. agitator, criticizing Washington while getting close to its adversaries, including Syria and Iran.
A decade-long oil boom has allowed him to fund ideological allies from Bolivia to Cuba, where Chavez's victory was met with relief. Cuban leader Raul Castro was among the first foreign leaders to congratulate Chavez, calling the vote a resounding endorsement of the Venezuelan leader's "Bolivarian Revolution."
Chavez sends discounted oil to more than a dozen Central and South American countries. Communist-led Cuba, for example, receives more than 100,000 barrels a day of Venezuelan crude.
Venezuela is often repaid for the oil in services - Cuba sends doctors to Venezuelan slums, others pay in food and livestock - putting strain on the finances of state oil company PDVSA, which is already struggling to meet output targets.
With the election over, all eyes are on what Chavez will do next. After his landslide win in 2006, he ordered takeovers in the telecommunications, electricity and oil sectors. Some worry he could now extend nationalizations to other corners of the economy, including the banking, food and health industries.
Any recurrence of the pelvic cancer that has already forced him to undergo three operations in Havana since June 2011 could derail his plans.
The constitution states that if an incumbent steps down in the first four years of a six-year term, a new vote would be called - meaning that under such a scenario Capriles or another opposition candidate would have another crack at power.
Opposition leaders were crushed by the loss. After a tireless campaign that generated widespread euphoria among anti-Chavez voters and saw Capriles narrow the gap in polls, the opposition was hoping to finally unseat their nemesis.
Capriles, a 40-year-old state governor, bared his soul on Monday in a flurry of emotional Twitter messages, and urged his followers not to give up.
"I know a lot of people are sad, but we need to bounce back and keep believing that we can and will build a better country," he said.
STATE ELECTIONS LOOM
Capriles and other leaders of the Democratic Unity coalition must now prepare for state governor elections in December. They were hugely disappointed at winning a majority vote in only three of Venezuela's 24 states on Sunday, and need to win more governorships to chip away at Chavez's influence.
The Obama administration praised the Venezuelan people for the high turnout, but stopped short of congratulating Chavez.
"We have our differences with President Chavez, but we congratulate the Venezuelan people on a process that included high levels of participation," White House spokesman Jay Carney told reporters aboard Air Force One.
Relations with Washington are likely to remain on edge, though Venezuelan oil has continued to flow to the United States over the years despite diplomatic tensions.
Though Capriles was indisputably the strongest candidate to face Chavez since the leftist leader was first elected in 1998, few in the opposition thought the fight was fair.
Chavez made ample use of state television and spent 47 hours in "chain" broadcasts that forced other local television stations to carry speeches peppered with political commentary.
He also handed out houses and pensions financed with state funds, often in ceremonies that glorified his administration, while warning that the opposition would undo such programs.
The spending spree has weakened Venezuela's finances and may force a currency devaluation in early 2013, which would likely spur inflation that has been a top complaint among voters.
Rating agency Fitch voiced concerns on Monday about the Chavez government's ability to rein in its fiscal deficit while maintaining economic growth and curbing inflation.
(Additional reporting by Caracas bureau, Daniel Bases in New York and Jeff Mason aboard Air Force One; Editing by Andrew Cawthorne, Kieran Murray and Claudia Parsons)