A leading credit-rating agency downgraded Brazil's debt, highlighting the country's precarious finances as leftist Luiz Inacio Lula da Silva took an expanding lead into the last week of the presidential campaign.
With Lula's runoff against Jose Serra of the centrist ruling coalition set for Sunday, the rating downgrade emphasised the urgency of repairing Brazil's financial situation for the winner of the presidential contest.
Lula, a former labor leader running under on the Workers' Party, or PT, ticket, reiterated his call for a "new social contract" that will pull together Brazilians from all sectors of society to bridge the country's growing gap between rich and poor and restart a flagging economy.
But credit-rating agency Fitch Ratings cast a pall over the country's outlook, downgrading Brazil's rating by one notch on doubts about the continuity of economic policies and debt sustainability after the election in Latin America's largest economy.
"Only if the incoming president moves quickly to establish his credibility, by making sound appointments to key economic posts, affirming his commitment to prudent macroeconomic policies and reforms, and forging a workable coalition in Congress could Brazil get back on track to debt sustainability," Fitch said.
Brazilian Finance Minister Pedro Malan issued a statement slamming the move as hasty and based on faulty analysis.
Investors have driven Brazilian assets sharply lower in recent months on fears over Lula, above all questioning his ability to manage of Brazil's $260 billion debt burden.
If Lula wins on Sunday, he would lead Brazil's first elected left-wing government, promising greater social policies in a country with one of the biggest income gaps in the world.
A weekend survey by pollster Datafolha showed Lula's support rising to 66 per cent against 34 per cent for Serra. Lula fell just short of winning the election outright in the first round of balloting on October 6, forcing a runoff against second-place finisher Serra.
If he achieves the landslide victory that polls suggest is likely, Lula's mandate to take quick action and create what he has called a "government of national unity" could be boosted.
Lula began to lay the foundation over the weekend for a Council for Economic and Social Development, which would aim to establish a "new social contract" to get the stagnant economy moving again, above all to create millions of new jobs. Lula gathered business leaders, workers and social groups.
"Neither the PT nor the president alone can be different than the elite that govern this country," Lula told a theater full of Brazil's top entertainers in Rio de Janeiro while launching his program to bolster the entertainment industry.
"The task of ruling this country is not responsibility of one man, but of millions of people."
There had been some respite in financial markets at the end of last week as the PT repeated pledges to maintain prudent economic policies. Brazil's currency, the real, fell again on Monday and closed one per cent weaker at 3.915 per dollar.
Helping generate a negative mood in markets was news that withdrawals from Brazilian markets by foreign investors ballooned in the last two months as Lula's likely victory became imminent.
According to a source at the federal tax service, 1.7 billion reais ($400 million) of investments in Brazilian shares and debt instruments was pulled out of the country by foreigners in September. In the first 10 days of October, 400 million reais ($100 million) left the country, compared to an average of 20 million reais ($5 million) a month in the first six months of the year.
"What is worrying is the rising tendency of the tax collected on these investments, which indicates values way out of normal leaving" the country, the source at the federal tax service told Reuters.