EMERGING MARKETS-Brazilian assets recover partially after Lula's poll win triggers rout

By Sudeshna Ghoshal and Purvi Agarwal

Oct 27 (Reuters) - Brazil's peso 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 over 1% against the U.S. dollar after tumbling over 11% on Monday in its biggest one-day decline since 1999, while the benchmark Ibovespa index .BVSP had plunged close to 14%, in its biggest one-day fall since 2020. It was xx on Tuesday.

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.

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, and Brazilian assets marked their biggest one-day jumps in years.

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

MSCI's indexes tracking regional stocks .MILA00000PUS and currencies .MILA00000CUS logged their sharpest intraday falls in years on Monday. On Tuesday, they were up 1% and 1.2% respectively.

On the other hand, the Mexican peso was down 0.4%, weighed down by uncertainty over the USMCA free trade deal and the central bank's monetary policy stance weighed, which many investors viewed as "dovish".

"This is a temporary poor run for the peso, however, many major banks have assessed that Banxico officials are set on improving the financial environment for exporters as well as the tourism industry by enabling the depreciation of the currency," said Juan Perez, director of trading at Monex.

"This may hurt its carry-trade appeal as the once attractive interest rates such as above 7.0% seem a thing of the past."

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 0.7%, with Volaris VOLARA.MX leading the gains, after the airline released quarterly results late on Monday.

Colombian stocks .COLCAP slipped 0.2% while the peso weakened 0.5%, 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 to 12.50%.

In Chile, the peso appreciated 0.7% while stocks .MMXIPSAGC gained 1.1% ahead of the central bank's policy decision where it is expected to hold rates steady.

Elswehere in emerging markets, the shekel hit a 3-week high earlier in the day, boosted by reports of high voter turnout in Israel's election.

Data showed voter turnout at its highest level in 49 years, which analysts believe could point to a strong showing for parties opposing Prime Minister Benjamin Netanyahu's.

Israeli stocks .TA125 were up 1.8%.

Key Latin American stock indexes and currencies at 1519 GMT: