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. Last Updated: 07/27/2016

Investors Shrug Off Fears of Lula

SAO PAULO, Brazil -- After months of fretting over the prospect of Luiz Inacio Lula da Silva taking the helm of Latin America's biggest country, investors appear willing to play ball with Brazil's president-elect.

But the truce could be short-lived if the man everyone calls Lula doesn't move swiftly to convince investors that he can nurse the world's ninth-largest economy back to growth and avoid a default on Brazil's massive debt.

Lula, a former factory worker and union leader, trounced his rival Jose Serra in Sunday's runoff ballot, garnering 61 percent of the vote and becoming the nation's first elected left-wing president.

The outcome came as no surprise to financial investors, who have been pricing in a Lula victory for months, driving the country's stocks, bonds and currency to a slew of record lows.

"Now Lula will have to restate his commitment to market-friendly measures ... and show that he's willing to work with other political groups," said Marcelo Salomon, chief economist at ING Bank in Sao Paulo. If not, the "stress factor" could return, battering Brazil's markets further, Salomon said.

Investors have questioned Lula's ability to handle the economy, fearing the one-time socialist might backtrack on free-market policies and nudge the country toward a default on its $260 billion public debt.

But Lula has gone to great lengths in this campaign to move his left-wing Workers' Party to the center, pledging sound economic policies and vowing to work with the International Monetary Fund to stabilize the nation's shaky finances.

While Lula's softer image boosted his appeal among Brazil's traditionally conservative electorate, markets were slower to catch on. This month, the real sank to an all-time low of 4 to the dollar, while the country's main stock index plunged to levels not seen since February 1999.

But in the final weeks of campaigning, as Lula and his aides embarked on a charm offensive to calm the financial community, investors warmed to the former lathe operator, and markets showed signs of recovery.

Brazil's stock market rallied nearly 20 percent in a seven-day span heading into the election, while the real gained 5 percent in the final two days of trading before the vote.

If the rally is to continue, Lula will have to move quickly to name a transition team and eventually an economic Cabinet that are seen as market-friendly, experts said.

"Now the wait begins to see the names Lula comes forth with before we have a better idea of how the market will react," said William Eid Junior, professor at the Getulio Vargas Foundation business school.

Investors say the critical first step is for Lula to come out in favor of greater autonomy for the Central Bank, while also naming a finance minister and a new bank president with market credentials outside the Workers' Party ranks.

Lula sought to soothe markets Sunday, reaffirming in a interview his commitment to pay the government's debt. "I think the market will tend to calm down from here on," the president-elect said.

Some were more skeptical.

"You can't expect Lula to announce all the things people are expecting right out of the box," said Douglas Smith, chief economist for the Americas at Standard Chartered Bank in New York. "With all the expectations built up, it's easier to disappoint than to please."