Conservatives head for Canadian election victory

OTTAWA (Reuters) - Canada's ruling Conservatives were heading for a crushing victory in Monday's federal election, as the left-wing vote split between two parties and the separatist Bloc Quebecois faded to almost nothing.

Provisional results showed the Conservatives had up to 165 seats in Parliament, above the 155 they needed to transform their minority government into a majority. They won 40 percent of the vote, more than most pollsters had expected.

"The results are as they should be," Conservative supporter Fred Biddle said at Prime Minister Stephen Harper's raucous victory party in Calgary. "It looks like we are back to a two party system in Canada: Conservatives and all the rest."

The Conservatives, describing themselves as the guardians of a surprisingly resilient Canadian economy, had stressed throughout the election campaign that they needed a majority to keep the economy strong.

The provisional results showed the left-leaning NDP winning around 101 seats, by far its strongest showing ever. Its gains came largely at the expense of the Bloc and of the once-mighty Liberals, which lost more than half its seats.

The pro-labour NDP, which has never held power at the federal level, promised higher corporate taxes to pay for increased social spending, while the Liberals promised to increase spending on higher education.

All three parties said they would balance the budget, although they had different methods of doing so.

"It would appear that the Conservatives are headed to a majority government, and that is likely to be seen as a positive in the world's financial markets for the Canadian dollar," said Jack Spitz, Managing Director of foreign exchange at National Bank Financial.

The results left the Liberals, once dubbed Canada's party of government, in a poor third place in a dismal black eye for party leader Michael Ignatieff, a broadcaster and academic turned politician who never managed to connect with Canadians.

It was not clear that Ignatieff would retain his own seat.

The Bloc Quebecois were set to win just four seats, a sign perhaps that Quebeckers were fed up with being represented in Ottawa by a party that doesn't want Canada to exist in its present form.

Before the election the Bloc, the federal offshoot of a party that wants independence for French-speaking Quebec, had 47 seats, a strong majority of seats in the province.

"It may even give the Canadian dollar an extra boost, given the fact that perhaps that the question of sovereignty is really going to be put on the back burner," said Serge Pepin, of BMO Investments in Toronto.

"Canadian markets should react relatively positively."

Before the election, the Conservatives had 143 seats, compared to 77 for the Liberals and 36 for the New Democrats. There were two independents and three seats were vacant.

(Additional reporting by Pav Jordan, Jeffrey Jones, Scott Haggett, Randall Palmer and Louise Egan; Editing by Eric Walsh.)