UPDATE 5-Venezuela's Capriles to run against socialist Chavez

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* Opposition unity will be crucial to campaign success

* Chavez still leads polls ahead of presidential vote

By Marianna Parraga and Deisy Buitrago

CARACAS, Feb 12 (Reuters) - Youthful state governor Henrique Capriles won Venezuela's opposition primary on Sunday, setting up a potentially close battle with socialist President Hugo Chavez in an October election.

The ballot marked a step forward in the historically fractured opposition's attempts to oust Chavez, whose 13-year rule has galvanized the poor but divided the South American OPEC nation and spooked foreign investors.

Capriles, the 39-year-old center-left governor of Miranda state, won 62 percent of the vote in Venezuela's first-ever opposition primary vote, easily beating nearest rival Pablo Perez on 30 percent.

"We've come to build a future for all Venezuelans," Capriles said at a victory rally, donning a baseball cap in Venezuelan colors and vowing to start his presidential campaign right away.

"As of tomorrow, these legs are going to walk through all the villages, all the slums, all the communities of Venezuela."

The four other opposition candidates joined him on the stage, to a backdrop of fireworks, in a symbolic display of unity meant to turn the page on past bickering inside opposition ranks.

The support of Perez, the governor of the most populous Zulia state who was backed in the primary by two large traditional parties, will help provide Capriles a formidable get-out-the vote machine.

Perhaps as important as Capriles' victory was the opposition turnout of 2.9 million voters in the poll, considerably above what the coalition had targeted in a sign that Chavez's adversaries have improved their ability to mobilize supporters.

The grandson of Polish fugitives from Nazi persecution, Capriles hopes his energetic style and decent record in Miranda can help him counter Chavez's vast government spending and popularity among Venezuela's poorest.

Capriles hails Brazil's market-friendly but socially conscious policy model as his inspiration and has said he would take a "no shocks" approach to dismantling Chavez's statist economic policies, such as currency controls.

CHAVEZ STILL STRONG

Chavez supporters were quick to dismiss the results, noting that the total turnout in Sunday's ballot was only a fraction of the country's 18 million registered voters.

They say the opposition represents an old, discredited political elite who paid scant attention to the poor majority in the past and will never beat the president. Polls show that Chavez, a former soldier who is looking robust again after recent cancer treatment, has an edge as the campaign heats up.

Information Minister Andres Izarra said via Twitter that the 2.9 million voters on Sunday were less than the number the opposition had to request a 2004 recall referendum that Chavez ultimately beat out. "Now let's hope they recognize Chavez's victory on Oct. 7."

Chavez, 57, has won almost all of a dozen or so national votes in Venezuela since taking power in 1999, and has survived national strikes, massive street protests and even a brief military coup that toppled him for 36 hours.

Reading a newspaper in a sunny square deep in the pro-government January 23 area on hills above Chavez's presidential palace, 66-year-old retired pharmacy assistant Ramon Paraera said no one would beat the president.

"Chavez is helping the people. He's with the people, not the bourgeoisie," he said, sitting below a mural of revolutionary heroes including Ernesto "Che" Guevara.

At stake is control of the biggest crude reserves in the world and state oil company PDVSA, which despite declining output still sends more than three quarters of a million barrels a day to the United States and about half a million to China.

Chavez has nationalized almost all Venezuela's oil industry over the years, kicking out U.S. majors and putting PDVSA in charge of multibillion dollar projects. The opposition deny government allegations they plan to privatize the company.

Never out of the spotlight for long, Chavez attended a rally on Sunday to celebrate the 198th anniversary of the "Batalla de La Victoria" ("Battle of Victory") against Spanish forces.

"We cannot let Venezuela lose its independence," said Chavez, who often mocks his political foes as U.S. stooges.

The former soldier pledges "more socialism" for Venezuela if he wins re-election, while the opposition is stressing its commitment to addressing Venezuelans' non-ideological concerns - crime, unemployment and social services.

"In our assessment, assuming his health allows him to campaign, President Chavez is still the favorite to win even if facing a likely competitive challenge from Capriles," Goldman Sachs analyst Alberto Ramos said in an a research note.

However daunting the task ahead, Capriles supporters were enjoying their big night. Thousands chanted "Unity! Unity!", waved Venezuelan flags and danced outside his campaign headquarters.

"This is a historic triumph, a triumph of 3 million votes," said university student Moises Carvallo, 19. "This will motivate the undecided voters and give us victory on October 7."

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