Brazil market slides after left-wing President Dilma Rousseff re-elected

Re-elected Brazilian President Dilma Rousseff (centre) waves next to her Vice-President Michel Temer (right) following her win, in Brasilia on Oct 26, 2014. -- PHOTO: AFP
Re-elected Brazilian President Dilma Rousseff (centre) waves next to her Vice-President Michel Temer (right) following her win, in Brasilia on Oct 26, 2014. -- PHOTO: AFP

RIO DE JANEIRO (AFP) - Brazilian markets delivered a harsh verdict Monday after left-wing President Dilma Rousseff narrowly won re-election, despite her pledge to unite a divided nation and reboot a stagnant economy.

The Sao Paulo stock market plunged six per cent in opening trade and the currency, the real, fell four per cent against the US dollar after Rousseff - the first woman to lead the world's seventh-largest economy - defeated business world favourite Aecio Neves in a run-off.

Stocks recovered slightly but still closed down 2.77 per cent, with the real off 2.58 per cent.

State-owned oil giant Petrobras, which was thrust into the campaign spotlight by a multi-billion-dollar kickback scandal implicating politicians linked to Rousseff, closed down 12.33 per cent.

After a vitriolic campaign that largely split the country between the poor north and the wealthier south, Rousseff won 51.6 per cent of the vote to 48.4 per cent for Neves, the closest margin of victory since the return to democracy in 1985.

The 66-year-old incumbent crucially picked up enough middle-class votes in the industrialised southeast to cement a fourth straight win for her Workers' Party (PT).

She will start her second four-year term on January 1 facing a laundry list of challenges: governing a polarised country, winning back the confidence of the private sector, reviving an economy in recession and tackling corruption.

"Rousseff will have her work cut out, politically and on the economy," said David Fleischer, a political analyst at the University of Brasilia. "She must reach out to industry and the private sector. Investments are way down - she must restore confidence."

Tackling the economy will be all the more difficult given a market implacably opposed to her.

"There is polarisation - and that is a negative. But there is pressure within her party for Rousseff to change course," said Lia Valls, an economist with the Getulio Vargas Foundation.

Rousseff has promised to replace Finance Minister Guido Mantega, and investors are watching closely to see who she names.

Meanwhile, Mantega sought to calm markets in a press conference Monday, laying out a plan for recovery.

"We need to create the conditions so investment keeps growing in the country. We need to reinforce Brazilian companies, reinforce the capital market, more companies need to list on the stock market, and so on," he said, vowing to rein in the stubborn 6.75-per cent inflation rate.

Rousseff, a former leftist guerrilla jailed and tortured for fighting Brazil's 1964-1985 dictatorship, called for unity in her victory speech and promised to listen to voters' demands for change after a record 26.1 percent of voters abstained.

Voting is compulsory in Brazil - but a no-show just brings a small fine.

"This president is open to dialogue. This is the top priority of my second term," she told supporters in the capital Brasilia alongside two-term predecessor Luiz Inacio Lula da Silva.

After four years of low growth culminating in recession this year, Rousseff admitted she must do better.

"I want to be a much better president than I have been to date," she said, issuing "a call for peace and unity" after a bitter campaign of low blows and mutual recriminations with Neves, a 54-year-old senator and former governor.

Rousseff won after persuading enough voters from a growing middle class to pin their hopes on further social gains that have lifted tens of millions out of poverty.

Under the PT, wages have increased and unemployment has fallen to a record-low 4.9 per cent.

But economic growth - which hit 7.5 per cent in 2010, the year Rousseff first won election - has since stagnated.

Besides an economic revival, voters are demanding an overhaul of shoddy public services and an end to corruption.

Rousseff roundly denied eve-of-poll allegations that she knew of the massive embezzlement scheme implicating dozens of politicians - mainly her allies - at Petrobras.

She hung on through a hard-fought campaign in which the lead changed hands several times, fending off both Neves and, in the October 5 first-round vote, popular environmentalist Marina Silva.

Numerous world leaders sent Rousseff congratulations, from Russian President Vladimir Putin to the European Union, and from Venezuelan President Nicolas Maduro to US President Barack Obama.

Obama's relationship with Rousseff has been strained since revelations emerged that the US spied on her communications, among the National Security Agency (NSA) leaks by former intelligence analyst Edward Snowden.

US Secretary of State John Kerry said the United States looked forward to continuing to work with Rousseff, adding the two countries shared a "strategic relationship bigger than any differences".