UPDATE 1-Market won't play ball with BOJ's new rate regime
* Market tests BOJ's resolve in meeting new interest rate target
* Democrats heartened by upticks in key races, indicators
* U.S. congressional elections set for Nov. 2
* Economic argument, turnout a key to election outcome
By John Whitesides
WASHINGTON, Oct 1 After enduring months of bad news and gloomy political forecasts, some U.S. Democrats are seeing signs of hope that Republican gains in the Nov. 2 congressional elections will not be as big as predicted.
A modest boost in the party's national poll numbers and an upturn for Democratic candidates in a few key states, particularly California and Washington, have fueled Democratic hopes that a yearlong Republican wave of momentum may have crested.
Several recent opinion polls also show a slight erosion in the huge Republican edge in enthusiasm for voting as President Barack Obama turns up his attacks on Republican economic policies while core Democrats begin to engage in the campaign.
The shifts offer Democrats a flicker of hope that a long-predicted Republican congressional landslide might not be big enough for Republicans to claim a majority in the U.S. House of Representatives or Senate.
Pollsters said the movement could be a natural tightening in the final weeks of a fierce campaign. Little has changed in the overall political atmosphere. Voters are still deeply unhappy about the economy and Obama's approval ratings are still stuck in the mid-40s.
"We saw a crest for Republicans in late August and early September when Democrats were at their absolute nadir," said Ipsos Public Affairs pollster Chris Jackson. "Now it's shifting to a more natural situation where Republicans make gains but maybe not the overwhelming wave forecast a month ago."
Democrats have struggled against a political headwind all year, with voters in a foul mood over persistent high unemployment, a growing budget deficit and the perceived failures of government in Washington.
The deteriorating political climate has put Democrats on the defensive in dozens of once-safe House and Senate seats and sparked widespread predictions that Republicans would pick up the 39 House seats and perhaps even the 10 Senate seats they need to take control of Congress and block Obama's agenda.
Republicans promise to cut spending, repeal the healthcare overhaul and shrink government if they take control of Congress. Obama has drawn a sharper economic contrast with Republicans in recent weeks by arguing that they would bring back the failed economic policies of President George W. Bush.
Obama also has focused more on cranking up Democratic enthusiasm, hitting the campaign trail this week to try to convince young people of the stakes in November.
TWO KEYS FOR DEMOCRATS
"The key for the Democrats in the final month is to do two things -- win the economic argument and turn out their voters," said Simon Rosenberg, head of the Democratic advocacy group NDN. "If they do that, they will end up in a better place on Election Day than anybody would have thought two months ago."
Some recent polls show slight gains for the party on voter preferences for Congress and voter enthusiasm, although most still show Democrats behind in both. In a NBC/Wall Street Journal poll this week, Republicans led by 3 percentage points when voters were asked which party they preferred in the congressional elections, down from a 9-point lead last month.
A Reuters/Ipsos poll in Ohio showed Democrats closing the enthusiasm gap on Republicans, with 79 percent of Democrats saying this month they were certain to vote compared to 67 percent in August. Republican enthusiasm was largely unchanged, with 91 percent certain to vote.
The same poll and others showed Democrat Ted Strickland wiping out Republican rival John Kasich's big lead in the Ohio governor's race.
In California and Washington state, several polls show Democratic Senators Barbara Boxer and Patty Murray opening significant leads in once-tight races against Republican challengers as traditional Democratic voters tune in the election.
"I think we are seeing some Democrats come home," said Karlyn Bowman, a poll analyst at the American Enterprise Institute. "I always thought the enthusiasm gap would close as we got closer to the voting, but it can only close so much. The party that is out of power is always going to be more enthusiastic."
But many of the Democratic gains in individual races have been offset by a Republican surge in other states. In the Connecticut Senate race, Republican Linda McMahon has wiped out most of Democrat Richard Blumenthal's once-big lead in polls.
In West Virginia, popular Democratic Governor Joe Manchin trails Republican John Raese in several new polls after holding a big early lead in their Senate race.
The uncertainty of the size and composition of voter turnout has complicated the polling. Few analysts can predict how many of the millions of first-time voters who turned out in 2008, drawn by Obama's candidacy, will return to the polls, or how the enthusiasm of conservative Tea Party activists will impact Republican voting.
"Many polls may have underestimated the intensity and turnout on Nov. 2, which I believe will favor Republicans," said Senator John Cornyn, head of the Republican Senate campaign committee.
The party in the White House typically loses seats in congressional elections two years after a new president takes power, and Democrats acknowledge they still face big losses in November.
But they have more room for improvement than Republicans -- particularly since polls show public approval ratings for congressional Republicans are no better than for Democrats.
"We can win some of these close seats because Republicans have not sealed the deal with voters," Democratic strategist Chris Kofinis said.
"The question is whether we can move from a disastrous year to a normal mid-term election year, or even something in between? Given the volatility in the electorate, that is possible," he said. "We still have an opportunity to minimize our losses, and have a better than expected outcome."
(Editing by Alistair Bell and Will Dunham)
* Market tests BOJ's resolve in meeting new interest rate target
TOKYO, Sept 30 The yield on benchmark 10-year Japanese government bonds edged up on Friday as the Bank of Japan trimmed the amount of long-term debt it buys at its regular market operations.
(Updates with final prices, details of Mexico rate hike) By Bruno Federowski SAO PAULO, Sept 29 The Colombian peso rose on Thursday on optimism that OPEC's plan to cut oil output for the first time in eight years could support crude prices, but the Mexican peso fell in spite of an expected interest rate hike by the central bank. The Organization of the Petroleum Exporting Countries agreed on Wednesday to cut output to 32.5 million-33.0 million barrels per day (bpd) fr