Brazil Markets Dive After Polls Show Rousseff Leading Neves

Brazil's key stock exchange index and national currency both sank Tuesday morning a day after new surveys showed President Dilma Rousseff had overtaken rival Aécio Neves in the polls.



In the first minutes of trading, the Ibovespa plunged more than 2,300 points, or 4.4 percent, with state energy companies Petrobras and Eletrobras suffering the biggest losses. The index later recovered modestly when New York markets began trading. At 1: 30 p.m. (1530GMT) in São Paulo the Ibovespa was still down 2.6 percent.



The real also suffered a sharp fall, opening at 2.464 against the dollar but within minutes weakening to 2.50. However, by lunchtime it had almost recovered lost ground.



Brazilians are heading to the polls Sunday, Oct. 26, to choose between Rousseff, candidate for the leftist Workers' Party who is vying for re-election, and Neves, candidate for center-right Social Democracy Party who is seen as more market-friendly.



Two polls released Monday showed that Rousseff was numerically ahead of Neves for the first time in the second-round campaign, although both candidates were locked in a technical tie given the polls' margins of error.



The larger Datafolha poll gave Rousseff 52 percent of valid votes, and 48 percent to Neves. Previous polls also saw the candidates technically tied, but with Neves numerically in front.



"Dilma surprised [us] a little, by increasing more in relation to Aécio. In a way, the market has bought the idea that the chance of victory for the opposition has decreased," Eduardo Velho, Chief Economist at investment banking firm Invx Global, told the Folha de S.Paulo newspaper on Tuesday.



"Aécio will now be hoping that some of the undecided voters opt for him and that those who said they'd back Dilma don't vote," Velho said.



Market analysts warned that investors were concerned that a victory by Rousseff would dash hopes of significant fiscal reform in her second term in office, and that the country's rate of inflation would worsen.



Figures seen as indicative of annual inflation were also released Tuesday, and showed the annualized rate was still above the 6.5 percent upper limit set by the central bank's inflation target.



The National Index of Consumer Prices (IPCA-15) was up 0.48 percent in October, with meat and beer pushing the rise in the index, after growing 0.39 percent in September, according to Brazil's official statistics agency, the IBGE. This equates to an annualized rate of inflation that now stands at 6.62 percent.



Commentators say that although the economy is at the heart of the candidates' campaigns, with Neves continually firing barbs on Rousseff's record in light of lackluster and target-busting inflation, many Brazilians have yet to personally feel the squeeze.



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