UPDATE 2-Japan's next PM Abe must deliver on economy, cope with China

TOKYO, Dec 17 (Reuters) - Japan's hawkish ex-premier Shinzo

Abe will get a second chance to run the country after his

conservative Liberal Democratic Party (LDP) surged to power in

Sunday's election, but must swiftly move to bolster the sagging

economy while managing strained ties with China.

Abe, whose party won by a landslide just three years after a

crushing defeat, was expected on Monday to meet Natsuo

Yamaguchi, the leader of the small New Komeito party, to cement

their alliance and confirm economic steps to boost an economy

now in its fourth recession since 2000.

The victory by the LDP, which had ruled Japan for most of

the past 50 years before it was ousted in 2009, will usher in a

government pledged to a tough stance in a territorial row with

China, a pro-nuclear energy policy despite the 2011 Fukushima

disaster and a potentially risky recipe for hyper-easy monetary

policy and big fiscal spending to boost growth.

Projections by TV broadcasters showed that the LDP had won

at least 291 seats in the 480-member lower house, while the New

Komeito party took at least 29 seats.

That gives the two parties the two-thirds majority needed to

overrule parliament's upper house in most matters, where they

lack a majority and which can block bills. The "super majority"

could help to break a policy deadlock that has plagued the

world's third biggest economy since 2007.

Markets have already pushed the yen lower and share prices

higher in anticipation of an LDP victory and Abe's economic

stimulus. The two-thirds "super majority" could boost share

prices and weaken the yen further.

Prime Minister Yoshihiko Noda's Democratic Party of Japan

(DPJ) was crushed, forecast to win just about 56 seats - less

than a fifth of its showing in 2009, when it swept to power

promising to pay more heed to consumers than companies and pry

control of policies from bureaucrats.

But voters deemed the pledges honoured mostly in the breach

and the party was hit by defections before the vote due to

Noda's unpopular plan to raise the sales tax to curb public debt

already more than twice the size of the economy.

"This was an overwhelming rejection of the DPJ," said Gerry

Curtis, a professor at New York's Columbia University.

"Abe was smart to run the campaign saying 'It's the economy,

stupid. His hawkish (security) views took second place to fiscal

stimulus and getting a dovish Bank of Japan governor and getting

the economy going. If he keeps that focus ... he has a chance of

improving his standing."

Analyst Bruce Klingner of the Heritage Foundation think tank

in Washington said the return of Abe and LDP was foremost a

rejection of the DPJ, but "also reflects an embrace of

conservative views" after recent years of strained relations

with Japan's close neighbors.

"Chinese assertiveness and North Korean provocations nudged

the public from its usual post-war complacency toward a new

desire to stand up for Japanese sovereignty," he said.

The Japanese favor moving toward "a more normal nation

status" and are not embracing resurgent militarism, added

Klingner, a former CIA analyst.

Abe, expected to be voted in by parliament on Dec. 26, will

also have to prove he has learned from the mistakes of his first

administration, plagued by scandals and charges of incompetence.

Voter distaste for both major parties has spawned a clutch

of new parties including the Japan Restoration Party, founded by

popular Osaka Mayor Toru Hashimoto, which took at least 52

seats, according to media projections.

But media estimates showed turnout at around 59 percent,

which could match the previous post-war low.

LDP leader Abe, 58, who quit as premier in 2007 citing ill

health, has been talking tough in a row with China over

uninhabited isles in the East China Sea, although some experts

say he may temper his hard line with pragmatism once in office.

The soft-spoken grandson of a prime minister, who will

become Japan's seventh premier in six years, Abe also wants to

loosen the limits of a 1947 pacifist constitution on the

military, so Japan can play a bigger global security role.

President Barack Obama congratulated Abe and underlined U.S.

interest in working with the longstanding American ally.

"The U.S-Japan Alliance serves as the cornerstone of peace

and prosperity in the Asia-Pacific and I look forward to working

closely with the next government and the people of Japan on a

range of important bilateral, regional and global issues," he

said in a statement.

The LDP, which promoted atomic energy during its

decades-long reign, is expected to be friendly to nuclear

utilities, although deep public concerns remain over safety.

Abe has called for "unlimited" monetary easing and big

spending on public works to rescue the economy. Such policies, a

centrepiece of the LDP's platform for decades, have been

criticised by many as wasteful pork-barrel politics.

Many economists say that prescription for "Abenomics" could

create temporary growth and enable the government to go ahead

with a planned initial sales tax rise in 2014 to help curb a

public debt now twice the size of gross domestic product.

But it looks unlikely to cure deeper ills or bring

sustainable growth to Japan's ageing society, and risks

triggering a market backlash if investors decide Japan has lost

control of its finances.

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