Brazil markets rise as Bolsonaro’s strong showing sparks runoff vote

SAO PAULO/BRASILIA, Oct 3 (Reuters) – Brazil’s real currency and stock market rose on Monday after far-right President Jair Bolsonaro outperformed in the polls, denying leftist Luiz Inacio Lula da Silva an outright victory and holding onto his seat in a tense poll. First round.

Bolsonaro’s unexpectedly strong showing on Sunday dashed hopes for a quick resolution to a deeply polarized election in the world’s fourth-largest democracy. It revitalized the presidential campaign, setting the stage for a highly competitive and tense runoff on October 30.

Local markets cheered the decision, hoping it could force Lula to move to the center and limit his room for dramatic policy changes. Brazil’s real strengthened roughly 3% against the dollar in morning trade, while the Ibovespa stock index (.BVSP) Also up 3%.

State-run companies led Brazil’s main stock index, along with shares of oil giant Petrobras. (PETR4.SA) and lending bank Brazil (BBAS3.SA) Up more than 7%.

With 99.9% of electronic votes counted, Lula had 48.4% and Bolsonaro had 43.2%.

The race has proven tighter than most surveys have suggested, giving momentum to Bolsonaro, who has insisted the polls cannot be trusted. If he returns, it would reverse a wave of victories for the left across the region in recent years, including in Mexico, Colombia, Argentina and Chile.

Capital Economics said in a note that Lula is still electable. But it said a “surprisingly strong performance” by Bolsonaro and his allies would present serious obstacles to governing Latin America’s largest country.

“This will help allay fears of a sharp shift to the left,” it wrote.

On Sunday night, Bolsonaro remained confident of victory and did not repeat recent criticism of Brazil’s voting system. Ahead of the polls, he had made baseless attacks on the integrity of the electronic voting system and suggested that he should not concede defeat.

“I plan to form the right political alliances to win this election,” he told reporters, pointing to the significant strides his party has made in Congress.

Bolsonaro’s right-wing allies won 19 of the 27 seats in the Senate, and early returns suggested a strong showing for his base in the lower house.

Lula took a hopeful spin at the end, saying he was looking forward to another month on the campaign trail and the chance to debate Bolsonaro face-to-face.

Inside his campaign, however, some polls showed him to be less desperate than narrow majority forecasts, with weaker results in state races outside his party’s traditional northeastern stronghold.

“There was a clear movement of votes in the Southeast, beyond what the polls and even the campaign had detected,” a campaign source said on condition of anonymity.

Support for the distant third- and fourth-place finishers was also lower than in recent surveys, suggesting some of their supporters may have switched to Bolsonaro when it came time to vote.

Centrist senator Simone Debate, who won 4% of the vote, and centre-left former lawmaker Ciro Gomez, who won 3%, both said Sunday night they would announce results on the endorsements in the coming days.

With Bolsonaro gaining momentum, Lula may need all the help he can get.

“Clearly Bolsonaro was underestimated,” said Senator Humberto Costa, an ally of Lula’s Workers’ Party.

Additional reporting by Lisandra Paraguasu in São Paulo and Maria Carolina Marcello in Brasilia, Eduardo Simos and Ricardo Brito in Brasilia

Our Standards: Thomson Reuters Trust Principles.