SAO PAULO, Brazil: Brazilian stocks surged more than eight percent on October 5 as investors cheered right-wing Senator Flavio Bolsonaro's first-place finish in the presidential election, a strong showing matched by gains for his allies in Congress.

Analysts say a friendlier legislature would make it easier for Bolsonaro to push through a pro-market agenda of tighter public spending, privatizations, and tax cuts if he wins the October 25 runoff against leftist incumbent President Luiz Inácio Lula da Silva.

"The likelihood of advancing reforms is much greater," said Pedro Paulo Silveira, an analyst at Terra Investimentos. He noted that during the previous Bolsonaro government, reforms often depended on costly political bargaining or stalled altogether.

The Bovespa benchmark stock index gained more than 8 percent. In early trading, the real strengthened more than four percent against the U.S. dollar, moving below 5.00 per greenback from around 5.22.

J.P. Morgan upgraded Brazil's equities to "overweight." The bank said a more favorable political backdrop, following recent election developments, improved the outlook for the region's largest market.

Analysts also expect the real to continue strengthening into 2027. Societe Generale forecast it would reach 5.10 by the end of 2026, with scope to move below 5.00 in the first half of 2027. Morgan Stanley forecasts the real could strengthen past 4.90 and toward 4.50 in the first quarter of next year.

"The market wants change, it wants reform; it doesn't want a high public deficit; with the current government, all of this will continue," said Pedro Galdi, investment analyst at the AGF Investments platform.

Bolsonaro has pitched himself as a "more centered" version of his father to investors concerned about Brazil's burgeoning fiscal pressures.

"It remains to be seen whether the senator would ultimately prove more fiscally responsible than Lula would be in a fourth non-consecutive presidential term. However, markets are likely to give him the benefit of the doubt," said Thierry Larose, portfolio manager at Vontobel.

Bolsonaro, the eldest son of former President Jair Bolsonaro, won 47 percent of the votes cast in the October 4 first round, while Lula took about 45 percent. Polls had forecast Lula would lead the first round by around three percentage points.

Bolsonaro's Liberal Party increased its Senate seats from 15 to 28, the strongest result for a party since Brazil's return to democracy in 1985. It is also projected to secure 121 seats in the lower house, up from 98.