* Sarksyan wins second five-year term
* Opposition party alleges fraud, holds protest
* International observers see lack of genuine competition
By Hasmik Mkrtchyan
YEREVAN, Feb 19 (Reuters) - Armenian President Serzh Sarksyan promised on Tuesday to make the country secure and stable after cruising to victory in an election which international vote monitors said lacked real competition.
But Sarksyan faces a challenge in his second five-year term to prevent tensions increasing with Azerbaijan over the enclave of Nagorno-Karabakh that could lead to a new war in the South Caucasus, where pipelines carry Caspian oil and gas to Europe.
Preliminary results showed Sarksyan won 58.6 percent of votes cast in Monday's election, enough to avoid a run-off. But his victory provoked allegations of fraud from his opponents.
"Armenia chose the path towards a safe Armenia and I am happy and proud of the fact that every resident of Armenia will be on that path," Sarksyan, 58, told celebrating supporters.
Sarksyan's closest rival, U.S.-born former Foreign Minister Raffi Hovannisian, trailed on nearly 37 percent.
International observers said the vote was an improvement on recent elections in the former Soviet republic, including the 2008 presidential ballot in which 10 people were killed.
"However, the limited field of candidates meant that the election was not genuinely competitive," representatives of the Parliamentary Assembly of the Organization for Security and Cooperation in Europe said in a statement.
"The candidates who did run were able to campaign in a free atmosphere and to present their views to voters, but the campaign overall failed to engage the public's interest."
Several of Sarksyan's potential rivals, most notably former President Levon Ter-Petrosyan, decided not to run because they feared the election would be skewed in the president's favour.
A minor candidate was shot and wounded during campaigning, and police received 70 complaints of voting violations. The result was in line with opinion polls, however.
Hovannisian's Heritage Party alleged some ballots cast for opposition candidates had been thrown out. Up to 500 supporters gathered in Yerevan late on Tuesday, calling for Sarksyan to quit and promising more protests, but there was no violence.
Armenians had expected Sarksyan to win and there was little celebrating. "I expect that things will get better in the next five years. And after that of course we will need to change (the president). That's all," said Yerevan resident Roza Atovyan.
Another woman in Yerevan, Elana Akapova, said: "The president has a lot of administrative power. Therefore it's natural that he received the majority of the vote."
The election result strengthens Sarksyan's hold on Armenia, which borders Iran, Georgia, Turkey and Azerbaijan, after his Republican Party won a parliamentary election last year.
Sarksyan's promises of economic recovery went down well with voters in the country of 3.2 million, where more than 30 percent live below the poverty line. The average monthly wage is about $300 and unemployment was 16 percent last year.
Armenia is an important potential ally for the West which is trying to ensure Iran does not develop nuclear weapons, although tightening international economic sanctions on its neighbours could affect Armenia's trade and economy.
Sarksyan has outlined no big policy changes and investors and foreign governments are worried by Armenia's fraught relations with Azerbaijan.
FEARS OF NEW CONFLICT
About 30,000 people were killed in the war over Nagorno-Karabakh in the 1990s and Azerbaijan uses its diplomatic and economic muscle to isolate Yerevan. It has vastly increased military spending in the last few years, alarming Yerevan.
Nagorno-Karabakh is an ethnic Armenian-majority enclave inside Azerbaijan, which Armenia-backed rebels wrested from Azeri troops. Firefights along the border still kill troops on both sides and experts say a wider conflict is possible.
Sarksyan has accused Azerbaijan of threatening a new conflict. Azerbaijan denies it is the aggressor and says Armenians should hand back control of the mountainous enclave.
"In terms of domestic policy, we should expect a continuation of deepening ties with the West and the European Union," said Richard Giragosian, director of the Regional Studies Centre think tank in Yerevan.
He ruled out a breakthrough over Nagorno-Karabakh, saying: "Both sides remain too far apart."
Without a shift in regional politics, durable economic growth will be difficult for Armenia while its borders with Azerbaijan and Turkey remain closed. Turkey shut the border in 1993 in solidarity with its ethnic kin in Azerbaijan.
Most regional pipeline projects between growing regional power Turkey and the oil and gas-producing Azerbaijan isolate Armenia, making Yerevan more dependent on ties with its Soviet-era master Moscow, which has a military base on Armenian soil.
In congratulating Sarksyan, Russian President Vladimir Putin on Tuesday expressed a desire to further strengthen ties with Yerevan, which has a collective security agreement with Moscow.