UPDATE 2-Brazil ruling party steady in local election

(Adds PT reaction in paragraphs 4-5, updates Sao Paulo)

By Raymond Colitt

BRASILIA, Oct 5 (Reuters) - Brazilian President Luiz Inacio Lula da Silva's ruling Workers' Party appeared to have held its ground in local elections on Sunday but did worse than expected in Sao Paulo, the country's largest city.

The Workers' Party, or PT, won mayoral races in six of 27 state capitals and will compete in an Oct. 26 run-off vote in another three state capitals. The PT now governs eight state capitals.

The PT won the northeastern state capitals of Recife and Fortaleza, the southeastern capital of Vitoria, as well as the northern state capitals of Porto Velho, Palmas and Rio Branco, official results showed.

Party officials said they had also done well in smaller cities and celebrated the election results.

"We are satisfied. This is our best performance yet (in municipal elections)," Paulo Ferreira, PT Treasurer, told Reuters.

In the financial capital Sao Paulo, Marta Suplicy of the PT won 32.5 percent of the vote, against the 33.7 percent of the incumbent mayor, Gilberto Kassab of the conservative DEM party, based on 95 percent of the ballots counted.

An opinion poll on Thursday had projected a 9 percentage point lead for Suplicy over Kassab in Sao Paulo, a city of 17 million people. Short of the necessary absolute majority, they face a second round.

Before the election, Lula's party governed 17 of Brazil's 79 largest cities.

A strong performance could boost the chances of the PT in the next general election in 2010, when the constitution mandates Lula must stand down after two four-year terms.

Electoral authorities reported no major fraud or violence in the country, one of the world's largest democracies with around 190 million people. Federal troops patrolled parts of violence-plagued Rio de Janeiro, where drug gangs and militias had threatened some candidates during the campaign.

"We were extremely worried about the situation in Rio de Janeiro, the situation was explosive. Today it is not, things are normal," Carlos Ayres Britto, head of the Supreme Electoral Tribunal, told a news conference in the capital Brasilia.

In Rio de Janeiro, Eduardo Paes of the centrist Brazilian Democratic Movement Party got 31 percent of the vote and, in a run-off, will face Fernando Gabeira of the Green Party, who won 25 percent of the vote.

RISKS FOR LULA'S PARTY

Benefiting from Brazil's longest economic expansion in decades, Lula had a record 80 percent approval rating last month, polls showed.