British stocks surge on Conservatives' strong election result

* Blue-chip FTSE 100 index up 1.9 percent

* Utilities, banks rally after election results

By Sudip Kar-Gupta and Atul Prakash

LONDON, May 8 (Reuters) - Britain's stock market surged higher on Friday after Prime Minister David Cameron's Conservatives unexpectedly won the general election, giving the party another five years in power.

The blue-chip FTSE 100 index rose 1.9 percent to 7,017.35 points by 1104 GMT, within touching distance of the record high of 7,122.74 points reached last month. It headed for its biggest one-day percentage gain since early January.

The FTSE 250 mid-cap index rose 2.9 percent to set an all-time high as the election results came through, pushing the Conservatives towards an overall majority and overturning poll predictions of a hung parliament.

Many investors had backed the Conservatives over the opposition, centre-left Labour Party which had set out tough new regulations on industries such as banking, utilities, real estate and gambling which could have hit the profits of companies in those sectors.

"We are seeing a relief rally in some domestically focussed names, with utilities, real estate, transport and banks having a pretty good day," Robert Parkes, director of equity strategy at HSBC Bank said.

"But the political uncertainty isn't going to go away. We have now got a referendum of Britain's EU membership on the horizon."

The FTSE 100 Volatility Index fell 17.5 percent to 13.69, the lowest since July. Trading volumes on the FTSE 100 were 93 percent of its 90-day daily average by midday, against 55 percent for the pan-European FTSEurofirst 300 index.

Below were the big sectoral movers of the day:

* UTILITIES - The FTSE 350 Utilities index up 4.2 pct, the biggest one-day percentage gain in six years, on the prospect of less regulation in the sector. The Labour party wanted to give the energy regulator the power to force firms to cut prices in response to falls in wholesale costs.

* Utilities Centrica, SSE (LSE: SSE.L - news) , Severn Trent (Other OTC: STRNY - news) and National Grid (LSE: NG.L - news) rise 2.9 to 7.4 percent.

* BANKS - British banks up 2.6 pct as elections results remove fears of a break-up of the biggest banks and further hikes in a tax on banks' assets. Lloyds, RBS (LSE: RBS.L - news) , Barclays (LSE: BARC.L - news) are up 4.0 to 5.9 pct.

* BETTING FIRMS - Ladbrokes (LSE: LAD.L - news) surges nearly 10 pct on relief that the opposition party, which wanted a new levy on online betting, was likely to be out of the power.

* REAL ESTATE - Property stocks up in a relief rally as Labour's "mansion tax" proposals and "use it or lose it" policy for developers who own land that could be used for homes had unnerved investors. On the other hand, the Conservative Party plans to expand a "Right to Buy" programme to allow people living in social housing to purchase their homes at a discount.

* Housebuilder Berkeley Group, Estate agents Savills (LSE: SVS.L - news) , Country Countrywide, Foxtons and online property search company Zoopla up 6.6 to 8.8 percent.

* ZERO-HOUR CONTRACTS - Sports Direct rises 4.4 pct. It is a large user of zero hours contracts, seen as being under threat by a Labour-led government.

* BUS COMPANIES - Stagecoach, Go-Ahead, National Express (LSE: NEX.L - news) and FirstGroup (LSE: FGP.L - news) up 3.1 to 6.2 pct after the election results. The Labour party had planned a regulated service, with local government setting fares and routes. (Reporting by Atul Prakash; Editing by Crispian Balmer)