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Republican presidential candidate Donald Trump speaks at his Iowa Caucus night gathering February 1, 2016 in Des Moines, Iowa.Scott Olson

Iowa shattered the Trumpian aura of inevitability, recasting the Republican race for president and vaulting Florida Senator Marco Rubio into contention as the leading centrist in a three-way race with Donald Trump and Texas Senator Ted Cruz, the winner of the caucuses.

In the Democratic race, former secretary of state Hillary Clinton scratched out a wafer-thin victory over Vermont Senator Bernie Sanders, a self-described socialist whose avuncular appeal, especially to the young, exposed Ms. Clinton's passionless campaign just as Barack Obama did eight years ago.

But while Mr. Sanders, 74, was expected to challenge Ms. Clinton, 68, closely in Iowa and will probably beat her next week in his neighbouring state of New Hampshire, the Clinton machine, backed by a massive war chest and the party's grandees, is likely to overwhelm him once the campaign moves to bigger, more diverse states where African Americans and Hispanics form crucial Democratic constituencies.

It was the Republican race that was upended in Iowa – at least for Mr. Trump, the bombastic billionaire who was boasting only a few days earlier that "if we can win Iowa … we can run the table," predicting that his high-flying campaign might not lose a single state on the way to the Republican nomination.

Instead, he was soundly beaten by Mr. Cruz, 45, while Mr. Rubio overperformed to emerge as the leader among the quartet of centrists vying to challenge whoever carries the right-wing banner.

"Marco Rubio joined Donald Trump and Ted Cruz as a candidate with a realistic chance of winning the Republican presidential nomination," said Fred Barnes, a conservative political commentator and executive editor of The Weekly Standard magazine.

"Rubio pulled himself out of the pack of long-shot candidates and sure losers in the large GOP field," Mr. Barnes added.

Mr. Trump, 69, now faces a different sort of challenge: whether his jet-setting style can succeed in the hectic string of primaries and caucuses starting next week. Even if he wins in New Hampshire, his invincibility has been shattered and he faces a looming crush of multistate primaries, including Super Tuesday when more than a dozen states vote on March 1.

For months, Mr. Trump has defied the conventional wisdom that his soaring poll numbers were a political mirage. But Iowa injected a reminder that voters decide election outcomes.

"How stupid are the people of Iowa?" he had railed in a typical outburst last November. Only days before the caucuses, as the possibility of defeat emerged, he warned: "Unless I win, I would consider this a big, fat, beautiful – and, by the way, a very expensive – waste of time."

Winning Iowa, by itself, means little. The previous two Republican winners, Rick Santorum in 2012 and Mike Huckabee in 2008, both failed to secure their party's nomination. Mr. Cruz's victory proves only that he devoted months and millions of dollars to the ground game that works in Iowa and that his right-wing politics and solidly Christian credentials were deeply appealing to the state's evangelicals.

But by derailing Mr. Trump, Iowa has set the stage for two parallel Republican races that will probably determine which candidate emerges as the right-wing standard-bearer and which one represents the more moderate, establishment wing of the party.

Many Republicans believe that Mr. Trump's brand of populist nativism and braggadocio would so offend key voting constituencies such as Hispanics and women that the Democratic nominee, especially if it's Ms. Clinton, would win November's election.

Mr. Rubio, 44, may offer mainstream Republicans a compromise candidate most feared by the Clinton campaign. "We cannot afford – this country cannot afford – to lose this election, and I give the party the best chance not just to unify our party but to grow it," the senator said shortly after arriving in New Hampshire on Tuesday.

But the three current or former governors still in the Republican race – Jeb Bush from Florida, Chris Christie from New Jersey and John Kasich from Ohio – all regard New Hampshire as an opportunity to challenge Mr. Rubio, the son of Cuban immigrants, for the mantle of mainstream candidate to take on whoever of Mr. Trump or Mr. Cruz emerges as the leading right-winger.

Already, the Republican field that once numbered 17 has been severely winnowed. Mr. Huckabee was the latest to quit after a miserably poor showing in Iowa. Retired neurosurgeon Ben Carson, businesswoman Carly Fiorina and Kentucky Senator Rand Paul may be next.

Even Mr. Bush – once predicted as the probable nominee, armed with name recognition, a two-term record of governing in Florida and a huge war chest – seems mired in hopelessness. He finished a distant sixth in Iowa with barely 3-per-cent support.

Meanwhile, former Maryland governor Martin O'Malley, who placed a distant third in the Democratic contest, also quit after the Iowa results were announced.

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