By Caroline Stauffer and Terry Wade
LIMA (Reuters) - Lower-income voters are expected to hand left-wing nationalist Ollanta Humala victory in the first round of Peru's presidential election on Sunday, but he could struggle to win a runoff against a rival backed by the business community.
Humala, a former army officer who has moderated his tone since narrowly losing the 2006 race, leads by as much as 10 points over three more market-friendly candidates who are in a tight race for second place, the latest polls show.
Vying for a spot in the June 5 runoff in one of the world's fastest-growing economies are former President Alejandro Toledo, former Prime Minister Pedro Pablo Kuczynski and lawmaker Keiko Fujimori, the daughter of imprisoned former President Alberto Fujimori. Polls show her with a narrow grip on second place.
They have sought to dampen Humala's chances by saying he would step up state control over the economy, rolling back reforms and jeopardizing some $40 billion (24 billion pounds) of foreign investment lined up for the next decade in mining and energy exploration.
Those warnings have sought to frighten voters who are enjoying relative wealth and stability after years of hyperinflation and guerrilla wars during the 1980s and 1990s.
But Humala, 48, who led a short-lived military revolt in 2000, has surged in the race by shedding his hard-line image and recasting himself as a soft-left leader in the vein of former Brazilian President Luiz Inacio Lula da Silva.
He has promised "gradual change" to ensure the country's decade-long boom reaches the one-third of Peruvians who still live in poverty.
"I've changed a lot. I've learned a lot in these years of political life and we've had our finger on the country's pulse," he said on Friday, dismissing criticism from rivals that a vote for him was like "a leap into the abyss."
Humala has taken to wearing ties, carrying rosary beads to show he is a devout Roman Catholic and promising to be fiscally prudent while respecting the independence of the central bank and honouring the country's many free-trade pacts.
A LULA, NO CHAVEZ
His softened tone has persuaded some on Wall Street and in Peru's vast mining sector that he has matured and is no longer like his brother and father, two well-known Peruvian radicals.
Moody's ratings agency said Peru's investment-grade credit rating would not be threatened by an eventual Humala victory.
Analysts see him as South America's next Lula rather than a leftist firebrand in the mould of Venezuelan President Hugo Chavez, from whom Humala has sought to distance himself.
Still, Peru's sol currency and the country's main stock index have dipped over the past two weeks on worries Humala could raise mining taxes, hike state subsidies or tighten control of "strategic" sectors like electricity.
"Though he is now sending a more centrist message ... the market is not convinced and still perceives him as someone quite likely to advance heterodox initiatives, in some cases unwinding reforms that have served Peru well," New York-based investment bank UBS said in a report.
Some voters also doubt he has left his radical past behind.
"I'd vote for anyone but Humala because I'm scared he wants to make Peru like Venezuela," said Rosario Aguayo, 58, an administrator shopping in an affluent district of the capital, Lima.
Voting starts at 8 a.m. (1300 GMT) from the Amazon forest to the Andes, but no official results are expected for several hours after polls close at 4 p.m. (2100 GMT).
Humala got 30 percent of the vote in the first round in 2006 before losing the runoff by 5 percentage points to President Alan Garcia, who cannot run again.
This year's second round could be just as tight.
Toledo, 65, the architect of Peru's free-trade pact with the United States, would be best-placed to beat Humala because their families are both from the Andes and they compete for the ethnic vote, although Toledo's support extends across social classes.
Kuczynski, 72, a former Wall Street banker who is known as "El Gringo" because of his European parents, could have trouble gaining traction outside of Lima, where he is strongly backed by wealthy voters.
Fujimori, 35, is shunned by many voters because her father is in prison for corruption and human rights crimes stemming from his crackdown on insurgencies in the 1990s.
Both Humala and Fujimori have disapproval ratings of about 50 percent, the worst in the race, leading some to describe a runoff between them as "the nightmare scenario."
Peruvian Nobel literature laureate Mario Vargas Llosa, who lost to the elder Fujimori in the 1990 presidential race, has said a victory for either Humala or the younger Fujimori "would truly be a catastrophe for Peru."
"Touch wood, it won't come to that," the novelist said in a recent interview with CNN.
(Additional reporting by Patricia Velez, Helen Popper, Marco Aquino and Teresa Cespedes; Editing by Anthony Boadle)
