* Republicans failed to defeat Obama or win back Senate
* Frustrated colleagues seem set to keep McConnell as leader
By Thomas Ferraro
WASHINGTON, Nov 12 (Reuters) - U.S. Senate Republican Leader Mitch McConnell set two top goals for the 2012 election: a Republican takeover of the Senate and the defeat of President Barack Obama.
He achieved neither.
Starting in January, he will be up against a president he tried and failed to bring down, with a Senate minority weaker by two.
"We all had a bad day," said Josh Holmes, chief of staff of McConnell's personal Senate office.
While there is no sign of any immediate threat to his job as minority leader, McConnell is facing intensified criticism from the right, which has seen him for some time as too "establishment."
McConnell blocked much of Obama's agenda the past two years, including his call to increase taxes on the wealthiest Americans. But some conservatives complained that he was not sufficiently hardline. They were outraged, for example, when he compromised with Obama and agreed to increase the debt limit in 2011 and extend a payroll tax cut.
McConnell is also looking over his shoulder at his own re-election prospects in Kentucky in 2014 and the possibility of a primary challenge from the right, which could limit his flexibility in negotiations over pressing tax and spending issues such as the "fiscal cliff."
To fend off a possible challenge by a candidate backed by the conservative Tea Party movement, McConnell hired Jesse Benton as his campaign manager - a political strategist with Tea Party ties.
"McConnell will be in the middle of a battle for the heart of the party," said James Thurber of American University's Center for Congressional and Presidential Studies. "The Republican Party is shifting to the right under his feet. He may not survive."
Asked whether he would support McConnell for minority leader this week when Congress returns for its post-election session, conservative Wisconsin Senator Ron Johnson said, "I'm going to wait to hear what everyone has to say when we get back on Tuesday."
He added, "I want to see a really well-thought-out strategy about how we are going to be handling the next two years," both legislatively and politically.
Another Tea Party-backed Republican senator, Mike Lee, rose to McConnell's defense. "This is not the time for a circular firing squad," Lee told Reuters in a telephone interview. "We need to come together and move forward."
"Mitch is a strong conservative. Those who criticize his leadership must remember he has a tough job," Lee said.
"The positions he takes as leader, which might be of concern to some conservatives, often reflect where the center of gravity is in our conference - and not reflect where he is," Lee said.
President Barack Obama's decisive victory over Republican challenger Mitt Romney helped Senate Democrats not only keep the chamber, but expand their majority by two, provided that newly elected Maine independent Angus King caucuses with Democrats.
Among the newly elected Republican senators are conservatives Ted Cruz of Texas, Deb Fischer of Nebraska and Jeff Flake of Arizona.
'REALLY BAD CANDIDATES'
Republicans have not controlled the Senate since 2007. They were optimistic about gaining the majority in the 100-member body in part because they had to defend only 10 seats, compared to 23 for the Democrats.
"Look at the numbers," said Paul Sracic, head of the political science department at Youngstown State University in Ohio. "McConnell is a big loser. But it's not all his fault. Republicans had some really bad candidates."
That argument has not stopped some conservatives, such as veteran activist Richard Viguerie, from calling for McConnell's replacement with someone "more in tune with the grassroots of the conservative base of the Party," as Viguerie wrote on his website, conservativehq.com.
But the Republican right wing contributed significantly to Republican Senate race losses by backing candidates such as Richard Murdock in Indiana and Todd Akin in Missouri whose comments on rape and abortion helped Democrats win in two states that might otherwise have gone Republican.
Back in McConnell's Senate office, chief of staff Holmes explained that his boss's role is an important but limited one.
"He (McConnell) is not the presidential nominee's campaign manager," Holmes said. "He isn't a puppeteer controlling the actions of 20 (Senate) campaigns across the country."
"His job is to manage the conference and push for the most conservative solutions possible up here," Holmes said.
Ethan Siegal of the Washington Exchange, a private firm that tracks Washington for institutional investors, said he expects McConnell to prevail next year.
"McConnell is a smart politician with sharp elbows," Siegal said. "He knows how to cut a deal and he's smart enough to worry about a challenge from the right until it happens or not."
Jennifer Duffy, who tracks Senate races for the nonpartisan Cook Political Report, said McConnell's move in hiring a Tea Party sympathizer as campaign manager may convince the Tea Party to leave him alone in the 2014 election.
Duffy said some Democrats may try to take on McConnell in Kentucky, but "it is unclear who it will be. McConnell has already raised a ton of money."
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