LOS ANGELES (Reuters) - A Democratic Los Angeles city councilwoman won a special election held on Tuesday for the liberal-leaning California congressional seat vacated by Jane Harman, as her Republican challenger conceded.

Veteran City Councilwoman Janice Hahn, whose brother James once served as Los Angeles mayor, finished first in the May 17 open primary and had been favored to win the runoff race in the state's heavily Democratic 36th congressional district.

A Republican businessman with Tea Party backing, Craig Huey, had looked for an upset victory over Hahn in the special election to represent the district, which runs along the southern Los Angeles County coast from San Pedro to Venice.

But with results showing an apparently insurmountable lead for Hahn, Huey conceded the election shortly before midnight, spokeswoman Jennifer Jacobs said.

"Craig's message of jobs and economy certainly resonated in a district like this, and we wish nothing but the best for the congresswoman-elect, and Craig will continue to fight for a better economy for America," Jacobs said.

A spokesman for Hahn did not return calls.

In the latest results, Hahn had 56.8 percent of the vote to 43.2 percent for Huey, with 127 of 261 precincts reporting, according to figures released by the Los Angeles County Department of Registrar-Recorder/County Clerk.

The campaign turned contentious in recent weeks, and it was closely watched by both major parties as a sign of whether normally safe Democratic seats have been left vulnerable by the persistent economic slump.

Voter angst over a sluggish economy and predictions of a low turnout at the polls had been expected to possibly help the Republican.

Huey, a first-time candidate who owns a direct-marketing business and publishes online voter guides for Christians, was the surprise No. 2 vote-getter against a number of better-known candidates in the primary.

Both candidates have stressed the importance of creating jobs but differ over the best way to stimulate growth. Hahn, 59, favors greater federal funding for clean-energy development and job training. Huey, 61, has called for lower taxes and less government regulation.

Huey poured nearly $800,000 of his own money into campaign television ads and mailers while rallying support from Tea Party activists and conservative California Republicans in Congress, including Tom McClintock and Dana Rohrabacher.

Hahn drew backing from organized labor, environmental activists, women's groups and most Democratic leaders.

Harman, who served nine terms in the House of Representatives and was a leading congressional voice on national security issues, resigned her seat this year to accept a post as head of a prestigious Washington think tank on foreign relations.

Democrats have a voter registration advantage over Republicans in the district of about 45 percent to 28 percent.

After winning Tuesday's election, Hahn will have to stand for reelection in a newly redrawn district in November 2012.

(Additional reporting by Steve Gorman; Editing by Cynthia Johnston)

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