* Windows 8, Surface tablet on sale at midnight
* CEO Ballmer sees Windows 8 recasting PC industry
* Customer, analyst reaction lukewarm
* New York Times, Amazon launch new apps
NEW YORK, Oct 25 (Reuters) - Microsoft Corp launched its new Windows 8 operating system and Surface tablet on Thursday in a bid to revive interest in its flagship product and regain ground lost to Apple Inc and Google Inc in mobile computing.
``We've reimagined Windows and we've reimagined the whole PC industry,'' Microsoft Chief Executive Steve Ballmer told Reuters Television.
Windows 8 devices and the company's new Surface tablet, which challenges Apple's popular iPad head on, go on sale at midnight on Thursday.
Steven Sinofsky, head of Microsoft's Windows unit and the driving force behind Windows 8, opened the launch event in New York in front about 1,000 media and PC industry partners.
He showed off a range of devices running Windows 8 from PC makers such as Lenovo Group Ltd and Acer Inc , but devoted the second half of the presentation to the Surface tablet, the first computer Microsoft has made itself.
``One person called it historic, unique. It's starting at $499 for the 32 GB version and we think that's a pretty darn good price. It's twice the amount of storage as a competing tablet for the same price,'' Sinofsky said, referring to the cheapest model of Apple's latest full-sized iPad.
Panos Panay, the head of the Surface project, gave a spirited demonstration of the tablet's features, beaming video and music to other screens, showing off the ultra-thin cover that doubles as a keyboard, and hooking up a camera to the device's USB port. He even dropped the device on the floor to demonstrate its durability.
Early reviews of the Surface tablet have been mixed, with praise for its hardware, but concerns about battery life and the limited software and applications available.
While Windows 7 was introduced three years ago, Windows 8 represents the biggest change in Microsoft's user interface since Windows 95 came out 17 years ago.
The radical redesign, which dispenses with the Start button and features square tiles for apps, may surprise some users.
Sinofsky sought to quell fears by emphasizing that the new system was built on the base of Windows 7, Microsoft's best-selling software that recently passed 670 million license sales.
Even so, early user reaction has been lukewarm.
``Enough consumers don't know where to go; they are still confused by Windows 8,'' said Richard Doherty from technology consulting firm The Envisioneering Group, speaking at the New York event. ``There were no developers here (at the event). I don't know if developers will embrace it.''
Initial demand for Windows 8 appeared solid, but customers are wary of spending money on unnecessary technology in the tight economy.
``We've seen steady pre-order sales on Windows 8 devices from early adopters,'' said Merle McIntosh, senior vice president of product management at online electronics retailer Newegg. ``However, we expect that most average consumers are waiting until after launch to make a purchase decision.''
Microsoft is offering several versions of the new system. The basic Windows 8, the full Windows 8 Pro and Windows 8 Enterprise for large organizations will all run on the traditional PCs, laptops and new tablets using Intel Corp chips. Windows RT is a new version of Windows that will be pre-installed on its Surface tablet and other devices using low-power chips designed by ARM Holdings Plc.
Through the end of January, users running Windows XP, Windows Vista or Windows 7 can download an upgrade to Windows 8 Pro for $40.
Microsoft has not said how many apps Windows 8 will have at the launch, but it is expected to be a fraction of the 275,000 available to iPad users. The New York Times Co announced a reader app for Windows 8 on Thursday and Amazon.com Inc launched a Kindle e-book app for the new system, but some big names such as Facebook Inc are not expected to feature.
Businesses are not expected to be early adopters of Windows 8, but some feel the new crop of tablets running Office applications could counter the iPad.
``Enterprise IT will do anything to not have to deploy iPads. There are development costs, new software they don't really understand,'' said Patrick Moorhead, founder of technology analysis firm Moor Insights and Strategy. ``Enterprise will more likely pick a Windows 8 tablet. (This) is going stop rollout of iPads in its tracks.''
Investors were uncertain about the prospects for the success of Windows 8, but many feel a solid launch could help Microsoft's stock, which has languished between $20 and $30 for much of the last decade.
Apple's shares have significantly outperformed Microsoft's over the past 10 years and its market value is now more than double Microsoft's. Microsoft shares were up 0.3 percent at $27.99 on Thursday afternoon, while Apple shares were down 0.8 percent at $611.70.
``This really is about debunking the notion that Microsoft is a dinosaur and they are relevant in a new climate of tablets and mobile,'' said Todd Lowenstein, portfolio manager at HighMark Capital Management, which holds Microsoft shares.
``Extreme pessimism and almost utter failure is priced into the shares, so any kind of positive delivery on units, customer perception, would be really beneficial to the stock.''