Brazil's Rousseff, Neves race for support in election runoff

SAO PAULO/BRASILIA (Reuters) - A tight runoff campaign for Brazil's presidency kicked off on Monday with leftist incumbent Dilma Rousseff and pro-business rival Aecio Neves racing to win over supporters of the third-placed candidate after she was knocked out of the election.

Neves, a centrist senator who had been widely written off until a few days before the first round of the election on Sunday, rode a late surge in support to grab second place with 33.6 percent of the vote.

He will now face Rousseff, who won 41.6 percent support, in an Oct. 26 runoff to decide what has been Brazil's most unpredictable election in decades.

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

His rejection numbers are lower than Rousseff's and he is expected to pick up most of the 21 percent of voters who backed the third-placed finisher, environmentalist Marina Silva.

Brazil's main stock index <.BVSP> soared 8 percent early on Monday and was still up more than 5 percent in afternoon trading as investors were cheered by Neves' strong showing. The country's real currency was 1.75 percent stronger.

"Incumbents with more than 40 percent rejection struggle to get re-elected, and she is at 43 percent," said Ricardo Guedes of local polling firm Sensus.

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.

After the first round of voting, both Rousseff and Neves immediately shifted their focus to win over Silva's supporters.

Silva had soared in opinion polls early in the race and looked on track to win the election in a runoff. Her support crumbled in the homestretch amid questions about her shifting views on major issues, but she is admired by many voters and could still help swing the election with an endorsement.

Top Rousseff aide Gilberto Carvalho said 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 told reporters.

Silva's party will meet on Wednesday and a decision on whether to endorse a candidate in the runoff is expected by Thursday, party leaders 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, or PSDB, are hoping for a formal endorsement and they were expected to meet with Silva's campaign team 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.

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 parties are arch-rivals and between them they have run Brazil for the last 20 years. Rousseff and her party accuse the PSDB of favouring the rich, a potent accusation in a country where more than half of 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, although Neves' dramatic turnaround gives him clear momentum.

That could be important in a race in which most voters have told pollsters they want change from the government but many also have misgivings about kicking Rousseff out of power.

The first polls of the runoff are expected on Thursday. They could face greater scrutiny after pollsters identified Neves' late first-round surge but failed to project the scope of it.

As recently as 10 days ago, polls showed Neves was stuck in third place and trailing Silva by 9 percentage points.

But when Silva's lack of party support and reputation for unpredictable decisions scared away many voters at the last minute, Neves' consistent pro-business message and calm, presidential air won them over.

Expectations of a Rousseff victory had in recent days battered Brazilian stocks and driven the currency to a five-year low. Although markets snapped back on Monday, they are likely to be volatile over the next three weeks.

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 Jeferson Ribeiro and Caroline Stauffer; Editing by Todd Benson and Kieran Murray)

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