EMERGING MARKETS-Brazil's real attempts recovery after election rout

By Sudeshna Ghoshal, Purvi Agarwal and Johann M Cherian

Oct 27 (Reuters) - Brazil's real clawed back some ground on Tuesday after a bruising selloff in the previous session following a surprise presidential election outcome, while investors awaited a raft of central bank decisions in the region this week.

The real strengthened about 1.4% against the US dollar after tumbling over 11% on Monday in its biggest one-day decline since 1999, while the benchmark Ibovespa index .BVSP slipped 0.5% after its worst day since 2020.

President Luiz Inacio Lula da Silva's unexpected reelection to a historic fourth term defied expectations of a victory for right-leaning Flavio Bolsonaro, dashing hopes for a consolidation of fiscal spending as Latin America's biggest economy reels under deteriorating public finances and high interest rates.

Bolsonaro also left the country for the US, refusing to comply with a Supreme Court order to hand over his passports, Reuters reported, citing two sources.

Thierry Wizman, global FX and rates strategist at Macquarie, said that there could be a "calming" in markets as they continue to accept the new "reality", and Brazil will remain remote from a default despite the state of finances.

"The central bank will not allow traders to presume that higher deficits will be accommodated with lower interest rates. The market has already sent that message early, and the central bank is likely to send the same message too," said Wizman.

Bolsonaro's surprise lead in the first round earlier this month had cemented his chances of a win, helping Brazilian assets.

Reflecting the uncertainty over new policy, BCA Research and Citigroup downgraded its ratings on local assets, joining JPMorgan.

"Investors are focused far more on the fiscal outlook, in particular Lula's choice of finance minister and the 2027 budget," said Carlos Hardenberg, partner and portfolio manager at MCP Emerging Markets.

MSCI's indexes tracking regional stocks .MILA00000PUS and currencies .MILA00000CUS rose 0.8% and 1%, respectively, after steep drops in the previous session.

On the other hand, the Mexican peso was down 0.6%, weighed down by uncertainty over the USMCA free trade deal and the central bank's monetary policy stance, which many investors viewed as "dovish".

Data released earlier in the day showed Latin America's second-largest economy recorded a trade surplus of $1.07 billion in September.

Local stocks .MXX rose 0.3%, with Volaris VOLARA.MX leading gains after quarterly results late on Monday.

Colombian stocks .COLCAP inched 0.2% higher while the peso weakened 0.4%, tracking slight declines in oil. Colombia's central bank is expected to meet on Friday, with markets widely expecting it to raise interest rates by 25 basis points.

In Chile, the peso appreciated 0.6% while stocks .MMXIPSAGC gained 1.2% ahead of the central bank's policy decision where it is expected to hold rates steady.

Elsewhere in emerging markets, the shekel hit a three-week high earlier in the day, boosted by reports of high voter turnout in Israel's election. Israeli stocks .TA125 were up 1.8%.

Key Latin American stock indexes and currencies: