Brazil ruling party wins coveted Sao Paulo mayorship
* Workers' Party handily wins Brazil's biggest city
* Party loses in two key cities in northeast
* Serra loss could imperil PSDB as main opposition force
By Brian Winter
SAO PAULO, Oct 28 (Reuters) - Brazil's ruling Workers' Party won the mayorship of Sao Paulo in elections on Sunday, giving it control of the country's biggest city and a prize it had long coveted, but the party's candidates lost two key races in its traditional stronghold in the northeast.
Former Education Minister Fernando Haddad of the Workers' Party took 56 percent of the runoff vote, beating former Governor Jose Serra from the centrist PSDB party to capture the mayor's race in Sao Paulo, official results showed.
Brazilian President Dilma Rousseff and other senior figures from her left-leaning party vigorously campaigned on behalf of Haddad, hoping to win control of the city of 11 million and Brazil's financial capital.
Serra won 44 percent of ballots on Sunday in a loss that may signal the end of his long career. The 70-year-old former governor lost to Rousseff in the presidential election in 2010.
Workers' Party candidates have traditionally struggled in Sao Paulo. Exit polls suggested that Haddad's victory had less to do with his party affiliation than with voters' desire for a change amid widespread dissatisfaction with the city's deteriorating traffic, security and basic infrastructure.
Serra campaigned as an ally of the unpopular incumbent mayor. His loss will likely prompt a broad generational changing of the guard within the PSDB, which has struggled to shed its image as elitist and is in danger of losing its role as the main opposition force nationwide.
"We're going to reduce the huge inequality that exists in Sao Paulo. We're simultaneously one of the richest and most unequal cities on the planet," Haddad said in his victory speech.
Sao Paulo represents about 12 percent of Brazil's gross domestic product, and gives the Workers' Party a major new source for influence and patronage. The city's budget is the third-largest in the country at $21 billion for 2013, behind the federal government and the Sao Paulo state government.
NOT A PERFECT NIGHT FOR LULA
Haddad was hand-picked as a candidate by former President Luiz Inacio Lula da Silva, who oversaw Brazil's economic boom from 2003 to 2010 and remains the country's most popular politician and an influential figure within the Workers' Party.
However, surprising losses elsewhere in Brazil suggest Rousseff, Lula and their party are still beatable.
Workers' Party candidates lost by healthy margins in Salvador and Fortaleza, two of the biggest cities in Brazil's northeast. Party candidates won in cities in Sao Paulo's gritty industrial belt such as Santo Andre and Guarulhos.
Voters nationwide are generally happy with the Workers' Party's management of the economy, as unemployment remains near historic lows of about 5 percent, despite a recent slowdown in activity.
However, a high-profile corruption trial involving some of Lula's former top aides reached its climax in the days prior to the municipal elections, reminding some voters of the party's reputation for graft.
The end of the municipal elections should signal a return to business as usual in Brasilia. Rousseff had been waiting for the politically charged period to pass before announcing new economic initiatives including a privatization of airports in Rio de Janeiro and elsewhere, aides said.
Rousseff is also likely to implement minor changes in her Cabinet to reflect coalition allies that emerged stronger from Sunday's voting, aides said.
They include the PSB party, which won mayorships in Fortaleza and at least four other state capitals and could supplant the PSDB as the biggest threat to Rousseff in 2014 presidential elections behind its popular governor, Eduardo Campos.
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