By Jorge Otaola and Walter Bianchi
BUENOS AIRES (Reuters) -A surprise first place for Argentina's ruling Peronists in a general election on Sunday could temper market fears about a runaway win for libertarian radical Javier Milei who has pledged to dollarize the economy and shut the central bank.
Peronist Economy Minister Sergio Massa won around 36.7% of the vote ahead of right-wing outsider Milei with some 30%, far outperforming pre-election polls and setting up a polarized run-off vote on Nov. 19 between the two.
Analysts said the result should make a sudden devaluation of the local peso currency less likely and reduce the chances of the country ditching the peso any time soon, though it does little to solve Argentina's myriad economic woes.
"It seems to me that it can alleviate the flight to dollars," said analyst Salvador Vielli.
"Many assets had begun to price in a disorderly dollarization, so the dollar could ease a bit," he added. There could be more intervention in the bond market, where sovereign debt already trades at distressed prices.
Bonds, which have been slipping recently amid the election uncertainty, dropped on Monday morning in pre-market trading.
The peso currency has been volatile in the run-up to the election, with the dollar trading for near 1,000 peso in popular parallel markets with Argentines restricted from accessing greenbacks at the tightly controlled official rate of 350 pesos.
Argentina is facing its worst economic crisis in two decades, with triple digit inflation driving a cost of living crisis, mounting debts and a recession looming after a painful drought.
A local market operator, who asked not to be named, agreed there would likely not be a big market slide on Monday.
"I don't think Massa's victory will trigger a sell-off of the few remaining holders of Argentine assets," the trader said.
Out-of-hours trading in the so-called "crypto dollar" suggested a slight currency strengthening in parallel exchange rates which are far away from the controlled official one.
The result meant that Together for Change mainstream conservative Patricia Bullrich, the establishment candidate popular with business, drops out of the race, with a close battle still to be fought between Massa and Milei.
"The reading for the market is negative twice. On one hand because 'Together for Change' was left out, and also because uncertainty continues as there is no clear majority," said Roberto Geretto of Fundcorp.
"We will have to see what the speeches, political alignments, or economic measures are like."
Sebastián Azumendi of Adcap said that the market had already been jittery and the result would help by reducing the chances of radical policy shifts.
"I think you have to look at it from the angle that investors were terrified of Milei and Bullrich's chances had been low," said Azumendi, adding investors "were more afraid of a Milei victory than of this result."
"I believe the market will open downwards but there will be a floor at which there would be some demand," he said.