Brown's poll setback sees Tories "back in business"

By Michael Holden

LONDON (Reuters) - Senior Labour figures said on Friday the party needed to re-engage with voters after it suffered a drubbing in local elections while delighted Tories said they were in shape to win the next general election.

Labour was on course to lose around 200 council seats -- around a quarter of the party's councillors who were up for election.

Meanwhile the Conservatives made gains across the country, while the Liberal Democrats beat Labour into third place, according to the BBC's projected national share of the vote.

"I think this is a very big moment for the Conservative Party, but I don't want anyone to think that we would deserve to win an election just on the back of a failing government," party leader David Cameron told reporters outside his London home.

"I think these results are not just a vote against Gordon Brown and his government. I think they are a vote of positive confidence in the Conservative Party."

Theresa May, the Conservative Shadow Leader of the House of Commons, told Reuters: "We had an excellent night ... taking far more seats than many of us had thought we might."

She said "crucially" they had made breakthroughs in southern areas where Labour had enjoyed success under Tony Blair and also in the north, gaining control of Bury and winning seats in Labour heartlands such as Sunderland.

"We've made a very good launch for the run-up to the next election."