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SAO PAULO, Oct 28 (Reuters) - Brazil's currency and stock markets rose on Tuesday as bargain hunters stepped in after a sharp sell-off sparked by the re-election of President Dilma Rousseff.
Rousseff's victory over market-friendly challenger Aecio Neves on Sunday led Brazil's real to close at a 9-1/2-year low on Monday. Local stocks also dropped, with preferred shares of heavyweight state-run oil firm Petrobras posting their biggest one-day decline in nearly six years.
Some investors saw those losses as overdone and took the opportunity on Tuesday to scoop up cheaper assets. The gains were also boosted by speculation that Rousseff would take a slightly more market-friendly stance in her second term.
Brazil's Bovespa stock index rose just under 2 percent, with shares of state-run companies and banks posting the strongest gains.
"The market is buying the initial indications of reforms in economic policy," said Joao Pedro Brugger, an analyst with Leme Investimentos in Florianopolis, Brazil. "Some of the names being floated around for the next finance minister are solid candidates that have the market's respect."
The Brazilian real rose about 1.3 percent.
Still, analysts warned that future price action will depend on whether Rousseff follows through on the hoped-for reforms.
"At the moment nothing has really changed and the trend is for the Bovespa to fall," Brugger added.
Yields on Brazilian interest rate futures <0#DIJ:> fell across the curve as some traders speculated that the central bank will be less aggressive in raising the benchmark Selic rate next year under Rousseff, even as inflation remains high.
All 43 economists surveyed in a Reuters poll expect the central bank to keep its benchmark Selic rate unchanged at 11.00 percent at its next policy meeting on Wednesday, despite stubbornly high inflation. Most believe the bank will wait to see what new economic measures Rousseff will take before changing course on rates.
"Given important economic demands and political pressures, there is growing hope that Ms. Rousseff's near-term policy stance may be slightly more market-friendly than initially anticipated," wrote Aryam Vazquez, senior economist with Oxford Economics, in a client note, adding that investors "may be slightly too pessimistic." (Reporting by Asher Levine; Editing by Meredith Mazzilli)