New photo POLL-Brazil real to rise after vote as optimism...

By Bruno Federowski

BRASILIA, Oct 4 (Reuters) - A cautious optimism that the winner of Brazil's presidential elections will manage to rein in growing public debt will likely support the Brazilian real, the latest Reuters poll showed, even as uncertainty over the currency shoots through the roof.

The real is likely to strengthen 2.2 percent in 12 months to 3.85 to the dollar, according to the median of 32 forecasts by market strategists and economists.

That is less than a third of the 9.6 percent appreciation predicted in last month's poll, but it would still take the currency far from all-time lows hit in August.

The latest revision most likely reflects the real's 5.6 percent rally since that survey, which had estimated the currency at 3.79 rate in a year.

Still, the standard deviation of the forecasts, a common gauge of dispersion, jumped to the highest since Reuters began compiling that statistic in November 2014, a sign recent volatility is unlikely to fade anytime soon.

This suggests that though forecasters continue to coat their predictions with conditionals and what-ifs, a consensus is emerging that whoever wins the vote will tackle a painful social security reform investors consider critical to balancing the budget.

"To some degree, every candidate has acknowledged a need to cut government spending, if you are willing to dig through the heated campaign talk," Garde Asset Management chief economist Daniel Weeks said. "Still, nothing's set in stone when you're talking about politics."

His perception seemed aligned with the wider market.

Sixteen economists who responded to an extra question said the most likely scenario going forward is a "slow fiscal reform," with an average 56 percent likelihood. A "fast fiscal reform" comes next at 26 percent, with only an 18 percent probability of "no fiscal reform."

That painted a largely rosy picture just days before the first round of voting this weekend.

Voter intention polls have consistently put far-right lawmaker Jair Bolsonaro, who has tapped a University of Chicago-trained banker as his main economic adviser, in the lead. He is followed by former São Paulo mayor Fernando Haddad, a stand-in for jailed ex-President Luiz Inácio Lula Da Silva.

Both appeared tied in a likely second-round vote and boasted the highest rejection rates among all candidates.

Brazilian markets have rallied as polls showed Bolsonaro maintaining momentum despite an erratic track record in economic policy and controversial statements on women's rights, homosexuality and other social issues.

Haddad's overtures to the business community, meanwhile, seem to have failed to captivate investors.

ASYMMETRICAL RISKS

While the optimism in the poll would seem like good news, it also means that any disappointment would hit the currency hard.

If the next president manages to swiftly implement belt-tightening reforms, the real would reach 3.60 to the dollar in 12 months, according to the median of 18 forecasts, slightly stronger than the consensus estimate in the poll.

But it would plummet to a 4.50 all-time low if no reforms are passed, a sign that disappointment over reforms would hurt the currency much more than positive surprises would lift it.

"It seems probable that the ultimate result of the election will be too close to call until the second-round vote on October 28," economists at UBS wrote in a report.

The poll's result highlights how politics are increasingly outshining traditional economic drivers for the currency, such as the outlook for current account deficits or interest rates. This has forced forecasters to roam away from their comfort zones and guess on elections and policymaking.

Emerging market assets have become particularly vulnerable as central banks in developed markets tighten policy, while trade tensions around the United States and other major economies drive investors away from risky assets.

(Other stories from the global foreign exchange poll: ) (Reporting by Bruno Federowski; Editing by Meredith Mazzilli)

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News Pictures POLL-Brazil real to rise after vote as optimism...

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