EMERGING MARKETS-Brazil markets rise as poll shows election headed to 2nd round

Mon Aug 18, 2014 4:29pm EDT

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By Walter Brandimarte

RIO DE JANEIRO Aug 18 (Reuters) - Brazil's financial markets closed higher on Monday as an opinion poll showed President Dilma Rousseff, criticized by investors for interventionist policies, is unlikely to win an outright re-election on Oct. 5.

The poll increased uncertainty about who is likely to face Rousseff in a second-round runoff - market favorite Aecio Neves or environmentalist Marina Silva.

Silva was statistically tied with Neves in a Datafolha poll, the first conducted after her running mate Eduardo Campos died in a plane crash last week. Silva's presidential bid is expected to be formally announced by the Brazilian Socialist Party on Wednesday.

The poll showed Silva four percentage points ahead of Rousseff in an expected second-round vote on Oct. 26, still within its margin of error. But the survey also brought good news for Rousseff as her approval ratings got a considerable boost.

While most investors were relieved that Rousseff now looks headed to a runoff, many also expressed concern about Silva, whose views on a number of economic policy issues are little known.

"Financial markets are still unsure of what to make of all this," Neil Shearing, chief emerging markets economist at Capital Economics, wrote in a research note. "However, we suspect that it makes it less likely the election will trigger the wholesale reforms needed to revive Brazil's economy."

Other analysts cautioned that it may be too early to make bets on the recent poll.

"This first poll is marked by a lot of commotion," said Jaime Ferreira, head of currency trading at Sao Paulo's Intercam brokerage, referring to the fallout from Campos' death. "We need to wait a few weeks to see how much of this actually translates into votes."

The real closed 0.2 percent stronger against the dollar. Easing geopolitical tensions related to the Ukraine-Russia crisis also contributed to gains in other emerging market currencies such as the Mexican peso.

Brazil's benchmark Bovespa index rose 1.06 percent, boosted by shares of state-run oil company Petroleo Brasileiro SA and lender Itau Unibanco Holding SA.

Shares of Petrobras, as the company is known, have rallied over the past few weeks whenever investors see lower re-election chances by Rousseff, whose government has forced the oil firm to sell fuels at a loss in the domestic market.

(Reporting by Walter Brandimarte; Editing by G Crosse and Meredith Mazzilli)

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