LONDON (Reuters) - British Prime Minister David Cameron swept to a stunning election victory on Friday, confounding forecasts that the vote would be the closest in decades and winning a clear majority that left his Labour opponents in tatters.
The sterling currency, bonds and shares surged on a result that reversed near-universal expectations of an inconclusive "hung parliament", in which Cameron would have had to jockey for power with Labour rival Ed Miliband.
Instead, Cameron met Queen Elizabeth at Buckingham Palace to accept a mandate to form the first majority Conservative government since John Major's surprise victory in 1992.
Despite the unexpectedly decisive outcome, longer-term uncertainty looms over whether Britain will stay in the European Union - and even hold together as a country. Secessionists swept the board in Scotland, and Cameron repeated a promise to hold a referendum on EU membership.
The scale of his triumph surpassed his party's most optimistic projections.
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"This is the sweetest victory of all," Cameron, 48, told enthusiastic supporters at party headquarters.
Smiling beside his wife Samantha, he returned to the prime minister's office in Downing Street after meeting the queen. Staff lined up to applaud when he entered the residence.
Cameron's pitch to voters was that he had rescued Britain from economic crisis to deliver the fastest growth among major economies. He had warned that Labour's Miliband would cripple the United Kingdom by giving Scottish nationalists the keys to England's treasure.
In early appointments to his cabinet, he retained George Osborne as finance minister, sticking with the man credited with overseeing recovery from the economic crash, and reappointed his foreign, interior and defense ministers.
Miliband, a self-confessed socialist "geek", had argued that the recovery was benefiting the rich and most people were still worse off. But he failed to connect with working class voters or convince the public he could be trusted with the world's fifth largest economy. He phoned Cameron to concede and then resigned as party leader.
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With all results declared in the 650-seat house, the Conservatives held 331 and Labour 232. The center-left Liberal Democrats, who supported Cameron in government since 2010, were all but wiped out, reduced to eight seats from 57.
Scottish nationalists won 56 of the 59 Scottish seats, up from just six five years ago.
The anti-EU, populist UK Independence Party (UKIP) surged into third place in the overall vote tally, but disappointed its followers by managing to place first in only one district to win just a single seat. Like Labour's Miliband, Lib-Dem leader Nick Clegg and UKIP leader Nigel Farage resigned as party leaders.
Sterling gained more than 2 cents against the dollar to rise above $1.55 for the first time since late February, though it later eased back to around 1.5450.
The FTSE 100 stock index <.FTSE> closed 2.3 percent stronger, approaching a record high set last month. The price of British government bonds also rose.
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"DISUNITED KINGDOM"?
Cameron's victory means Britain will face a vote which he has promised by the end of 2017 on continued EU membership.
Many Britons, including lawmakers in his own party, are frustrated by EU bureaucracy, high levels of immigration from the bloc and the precedence of laws made in Brussels over those passed in the Westminster parliament.
Cameron says he wants to stay in Europe, but only if he can renegotiate Britain's relationship with Brussels to strike a better deal.
European leaders lost no time in offering him talks on reform, with French President Francois Hollande inviting him to Paris. Jean-Claude Juncker, president of the EU Commission, told Cameron: "I stand ready to work with you to strike a fair deal for the United Kingdom in the EU."
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But the EU executive again stressed there could be no renegotiation of the bloc's basic treaties.
In Scotland, the extraordinary scale of the nationalist landslide victory reopened the question of the future of the United Kingdom less than a year after Scots voted in a referendum to remain inside it.
Scotland will send just three representatives of traditional British parties to the UK parliament in London and its dominant nationalists will be locked out of the British cabinet, arguments separatists could use to seek a new vote to leave.
Cameron sounded a conciliatory note towards Scotland, likely to be his first immediate headache, promising further devolution of powers to the Scottish government.
"In Scotland, our plans are to create the strongest devolved government anywhere in the world with important powers over taxation and no constitutional settlement will be complete if it did not offer also fairness to England," Cameron said.
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Alex Salmond, the former leader of the Scottish nationalists, now elected to represent them in parliament in London, called the SNP's victory an "electoral tsunami".
The United Kingdom includes England, Scotland, Northern Ireland and Wales, with England accounting for 85 percent of the population. Scottish politicians elected to parliament in London have held major cabinet posts, which could now be impossible with nearly all Scottish seats in nationalist hands.
In a blow to Labour that set the pattern for the night, Douglas Alexander, the party's campaign chief and foreign policy spokesman, lost his seat to a 20-year-old Scottish nationalist student, the youngest member of the House of Commons since 1667.
Labour also faced traumatic losses in England. Ed Balls, in line to be finance minister if Labour had won, lost his seat. He fought back tears as he expressed sorrow at Labour's defeat.
RIVALS QUIT
Miliband, an Oxford-educated son of a Marxist intellectual, never quite connected with working-class voters or cast off Labour's reputation for profligacy. He ran a campaign widely seen as better than expected, but was always far behind Cameron in polls asking voters who they saw as a more credible leader.
"Britain needs a Labour Party that can rebuild after this defeat so we can have a government that stands up for working people again," he said as he announced his resignation. "Now it's time for someone else to take forward the leadership of this party."
The Liberal Democrats were punished for Clegg's decision to join Cameron in government five years ago, which meant abandoning campaign pledges and which party members considered treachery. Two-thirds of the party's voters deserted it.
"It is simply heartbreaking," Clegg said of the losses. "Clearly the results have been immeasurably more crushing and unkind than I could ever have feared."
UKIP's surge into third place in the overall vote tally mirrored the rise of similar populist, anti-immigrant groups elsewhere in Europe.
It racked up dozens of second place finishes across the country, picking up votes from both Labour and the Conservative, but it failed to yield a strong presence in parliament under Britain's system in which candidates must place first in districts to win seats.
Its leader Farage, a charismatic former commodities trader credited with making a fringe party into a major force, resigned over his failure to win a seat for himself, but said he might seek the party leadership again later this year.
One other loser is the opinion polling industry, which is facing an inquiry over its failure to predict the outcome. Before the election, virtually all opinion polls had shown the Conservatives and Labour neck-and-neck.
