By Ursula Scollo and Caroline Stauffer
LIMA (Reuters) - Peruvian markets jumped on Monday as results showed two free-market candidates would move on to the second round of a presidential election: Keiko Fujimori, the conservative daughter of a jailed former president, and centrist economist Pedro Pablo Kuczynski.
With 83 percent of votes counted, Fujimori had 39.6 percent support while Kuczynski, 77, a former World Bank economist widely known by his initials 'PPK', had 22.1 percent and nationalist Veronika Mendoza trailed with 18.3 percent.
Peruvian stocks were on track for their biggest gain since 2008, with the select stock index (SPBL25PT) up more than 10 percent. The sol
The free-market model that has been in place for 25 years in Peru would be maintained in either a Kuczynski or Fujimori presidency, and their parties look likely to dominate congress.
"On paper, both programs are very similar," said Pedro Tuesta, an economist with 4Cast, adding that Kuczynski viewed the use of supply-side economics to boost growth more favorably, something that could increase deficits.
Markets had fallen over the past week on concerns about nationalist Mendoza, 35, who had called for replacing Peru's 1993 constitution and said Peru's powerful mining industry should have less sway.
Fujimori, whose father Alberto was Peru's authoritarian leader throughout the 1990s, fell far short of the 50 percent of votes needed for outright victory in the first ballot and will probably be vulnerable in the second round vote on June 5.
Despite her lead after Sunday voting, polls have shown opposition to Fujimori has grown since the start of the year, and many opposed to her father's divisive rule planned to rally behind a rival, whether Kuczynski or Mendoza.
The son of European immigrants, Kuczynski is a pro-business economist and a former finance minister but is more moderate on some social issues than Fujimori, 40, and does not have the baggage associated with her last name.
"I believe we can return to economic growth of 5 percent per year with a few measures," he said on Monday.
Kuczynski said if Congress passed a law to allow older convicts, including the elder Fujimori, to complete their sentences at home, he would sign it if he became president.
Keiko Fujimori has said she would drive economic growth forward, as a decade-long mining boom fades, by tapping a rainy-day fund and issuing new debt to fund badly needed infrastructure. She has portrayed herself as the only candidate who would be sufficiently tough on crime.
Fujimori's chances in the run-off will depend largely on whether she can distance herself from her father, who was convicted of corruption and human rights abuses tied to a crackdown on leftist insurgents during his 1990-2000 rule.
In a reminder of that bloody conflict, rebels presumed to be remnants of the Shining Path ambushed soldiers sent to safeguard ballots on the eve of the election, leaving at least six dead, authorities said.
Fujimori criticized President Ollanta Humala, a former military officer who defeated Fujimori during her first presidential bid in 2011.
"I'm sorry this government had allowed not only crime to advance in the streets but has also permitted Shining Path to keep taking lives and shedding blood in our country," Fujimori said as she celebrated her first-round win.
MINERAL WEALTH
On track to become the world's second-largest copper producer, Peru has enjoyed nearly two decades of uninterrupted economic growth.
Despite its vast natural resources, Peru remains largely undeveloped outside its main cities, and many voters say Humala failed to fulfill his promises of reducing inequality of wealth.
Presidents are not allowed to run for consecutive terms in Peru, and Humala has not endorsed any candidate.
The campaign was jolted by the unprecedented barring of two leading candidates, one for violating minor electoral procedures and the other for handing out cash while campaigning.
Critics said the ejections unfairly favored Fujimori, and the head of the Organization of American States warned elections would be "semi-democratic."
Fujimori has promised, if elected, not to use her power to free her father from prison, but she believes the courts will ultimately absolve him.
Human rights activists remain wary, and protests on April 5, 24 years after Alberto Fujimori dissolved Congress, drew tens of thousands of Peruvians.
An Ipsos opinion poll afterward showed Fujimori would probably lose to Kuczynski by seven points if they faced each other in a run-off. Fujimori's rejection rates also jumped, with 51 percent of Peruvians saying they would "definitely not" vote for her.