UPDATE 5-Argentine midterm primary tests Fernandez popularity
* Investors hope Sunday vote shows support for policy shift
* Fernandez would need constitutional change to run again
* Opposition leader Massa wins in Buenos Aires-exit poll
* Bond market, business would welcome a Massa victory
By Hugh Bronstein
BUENOS AIRES, Aug 11 (Reuters) - Argentine President Cristina Fernandez faced a tough midterm primary election test on Sunday, with exit polls showing headwinds to any effort by her allies to pass a constitutional amendment allowing her to run for a third term in 2015.
Candidates for October legislative elections are being chosen. With no competition among candidates on the lists offered by most parties, and with voters allowed to split the ticket among their choices for the Chamber of Deputies and Senate, Sunday's vote serves as a mega-opinion poll on Fernandez's heavy-handed trade and economic policies.
An over-valued currency, protectionist trade policies, ever-tightening foreign exchange controls and Fernandez's decision to nationalize Argentina's private pension system and top oil company YPF have upset investors and trade partners.
Argentina's bond investors and those interested in its vast farm and shale oil resources watched the primary for signs that voters may be tiring of Fernandez's approach and are ready for a market-friendly leader in 2015.
The first indication, according to an exit poll, showed that the list sponsored by opposition leader Sergio Massa won in the vote-heavy province of Buenos Aires, several local television channels said without providing more details of the poll.
Mayor of the affluent Buenos Aires suburb of Tigre, Massa headed his party's list of candidates for the Chamber of Deputies and is seen as a likely market-friendly presidential candidate. Forty percent of Argentina's electorate lives in Buenos Aires.
"A victory by Massa would be a definite market positive," said Alberto Bernal, head of emerging markets at Bulltick Capital Markets.
Other exit polls also showed government-allied candidates lost in the provinces of Cordoba, Santa Fe and Mendoza.
Argentine bonds have outperformed the market so far this year, partly based on expectations that Fernandez will lose political clout as 2015 approaches.
Buenos Aires provincial government bonds due in 2020/21 have returned 13 percent so far this year while emerging market bonds in general are down about 10 percent, Bernal said.
"My sense is that tomorrow we'll see another pop in prices," he added. "Her chances of staying in office past 2015 are looking very low right now."
Fernandez, 60, says she is not thinking about a possible third term, but talk persists that her congressional allies want the constitution changed to allow her to run again.
For that to happen, Fernandez would have to increase her control of Congress in October, when half the seats in the lower chamber will be up for grabs along with a third of the Senate.
Fernandez's allies would need a two-thirds majority in both chambers to get debate started on a constitutional change to permit a third term.
"She doesn't have that now and she won't have it after October," said Ignacio Labaqui, an analyst for emerging markets consultancy Medley Global Advisors.
"But if the ruling party gets 40 percent or better at the national level In October, it could still claim to have a strong enough mandate to pressure the opposition into a bargain allowing the third-term amendment."
The president is sponsoring a list of primary candidates under her FPV (Frente Para la Victoria) coalition, a branch of the country's dominant Peronist party.
While Massa's nascent political machine has dented Fernandez's support, the opposition remains fragmented. That could change if second-tier opposition candidates drop out and throw their support behind the 41-year-old Massa between now and October.
On the sidelines so far is Buenos Aires' popular governor, Daniel Scioli. He is officially allied with Fernandez but could step up to represent the FPV and run for president if her candidates do badly this year.
Scioli is seen as more of a centrist than Fernandez and would be embraced by business leaders.
Argentina's economy is meanwhile expected to grow by about 5 percent this year despite looming fiscal troubles.
The country has steady money inflows from soy, corn and wheat exports. However, public spending has outpaced revenue as the October vote approaches. Going into the primary, central bank reserves are at $37 billion versus $45 billion a year ago.