SAO PAULO/RIO DE JANEIRO

 

(Reuters) – An unexpectedly competitive runoff campaign for Brazil’s presidency kicked off on Monday with leftist incumbent Dilma Rousseff and her pro-business rival Aecio Neves racing to win over supporters of an ousted third-place candidate and other voters frustrated with a stagnant economy.

Neves, a centrist senator who has pushed for greater trade and lower government spending but who had been widely written off until the last few days of the campaign, rode a late surge in support to a strong second place with 33.6 percent support in Sunday’s first round of voting.

He will face the leftist Rousseff, who won 41.6 percent support, in the Oct. 26 runoff that will decide what has been Brazil’s most unpredictable election in decades.

Rousseff remains a slight favorite due to her enduring support among the poor, but Neves is within striking distance.

Brazil’s main stock index soared as much as 8 percent early on Monday, and the real currency gained as much as 3 percent as investors were cheered by the strong showing from the candidate they preferred all along.

Latin America’s largest economy has been stuck in a rut for nearly four years under Rousseff, and most of Brazil’s business community and Wall Street investors have made no secret of their desire for change.

Both remaining candidates immediately shifted their focus to the 21 percent of voters who backed the third-place finisher, environmentalist Marina Silva.

Silva’s campaign fell apart late in the race amid questions about her shifting views on major issues, but she remains admired by many voters and she could still help swing the election with an endorsement.

Top Rousseff aide Gilberto Carvalho told reporters on Sunday night that he had already spoken to the head of Silva’s Brazilian Socialist Party, Roberto Amaral, to ask for their support.

“He asked for calm and more time to talk with the party,” Carvalho said.

Most observers believe Rousseff has very little chance of winning formal backing from Silva, after unleashing a barrage of negative ads that contributed to her collapse.

Instead, her best hope may be for Silva to stay neutral, as she did after finishing third in the 2010 race, which could allow Rousseff to peel away her more left-leaning supporters.

Senior officials from Neves’ Brazilian Social Democracy Party (PSDB) are hoping for a formal endorsement and they expected to meet with leaders of Silva’s campaign on Monday, a party source told Reuters.

The two camps shared broadly similar market-friendly platforms and Silva’s campaign chief, Walter Feldman, is a former PSDB leader with enduring ties to the party.

Another Silva aide who wields huge influence with her, Eduardo Giannetti, told reporters on Sunday night he would support Neves.

“I don’t think it would be good for Brazil to have four more years of (Rousseff),” Giannetti said, according to the website for Veja magazine. “Now we have to re-establish confidence. Our best chance for that is with (Neves).”

BATTLE BETWEEN VISIONS

The runoff will be a battle between opposing visions for Brazil: the state-led capitalism of the ruling Workers’ Party, and the market-friendly policies promised by Neves and the PSDB.

The two arch-rival parties have run Brazil for the last 20 years, and the campaign is already breaking down along class lines as Rousseff accuses the PSDB of favoring the rich.

More than half of Brazil’s voters live in households earning less than $1,000 a month.

Polls taken prior to Sunday showed Rousseff would beat Neves by as much as 8 percentage points in a runoff.

Yet Neves’ dramatic turnaround gives him clear momentum – important in a race in which most voters have told pollsters they want change from the government but also have misgivings about kicking Rousseff out of power.

As recently as 10 days ago, Neves was stuck in third place and trailed Silva by 9 percentage points. But when Silva’s lack of party support and reputation for unpredictable decisions scared away voters at the last minute, Neves’ consistent pro-business message and calm, presidential air won them over.

The expectation of a Rousseff victory had in recent days battered Brazilian stocks and driven the currency to a five-year low. Markets snapped back on Monday on hopes of a Neves victory.

Still, countless investors have already lost money in recent months betting on a Rousseff loss, only to see her bounce back thanks to support from blue-collar Brazilians.

Despite falling investment, weak consumer confidence and a loss of competitiveness by Brazilian manufacturers, Rousseff and her supporters blame the economic woes on international instability, not her policies. Unemployment has remained near historic lows, and wages have been steady.

To win, Neves will have to distance himself somewhat from the PSDB’s last time in government, from 1995 to 2002, a period that saw important pro-market reforms but is remembered by most voters for high unemployment and painful budget cuts.

He must also convince voters that his promise to jumpstart the economy won’t come at the expense of social programs, especially a popular monthly stipend that low-income families receive in exchange for keeping their children in schools.

Rousseff said on Sunday that Brazilian voters “don’t want a return to the past,” and called the PSDB the party of recession – even though Brazil’s economy contracted under her own watch earlier this year.

(Additional reporting by Anthony Boadle in Brasilia; Editing by Todd Benson and Kieran Murray)