By Hugh Bronstein
BUENOS AIRES (Reuters) - A possible re-election bid by Argentine President Cristina Fernandez seemed less likely on Sunday after Buenos Aires province rejected her candidate in the midterm congressional primary, nominating instead a pro-business, small-town mayor.
The win by Sergio Massa - from the affluent suburb of Tigre, known for its picturesque canals - makes him a national figure and may set the stage for him to run for president in 2015.
Argentine bonds were expected to rise after Massa easily won his primary against a candidate hand-picked by left-wing nationalist Fernandez. Nationwide, her coalition clinched only 25 percent of the vote. Wall Street analysts had said anything less than 40 percent would boost Argentine asset prices.
Re-elected in 2011 on promises of increasing government's role in economy, Fernandez says she is not thinking about a possible third term. But talk persists that her supporters want the constitution amended to let her to run again.
Candidates for October legislative elections were chosen in Sunday's primary vote.
"If October replicates this primary result, forget about re-election," said Ignacio Labaqui, an analyst for emerging markets consultancy Medley Global Advisors.
With no competition among candidates on the lists offered by most parties in the primary, and with voters allowed to split the ticket among their choices for the Chamber of Deputies and Senate, the primary served as a mega-opinion poll on Fernandez's interventionist economic policies.
With 42 percent of the vote counted, Massa led Fernandez's candidate, Martin Insaurralde, by 6 percentage points.
Buenos Aires, where 40 percent of the country's electorate lives, is a must-win province.
Double-digit inflation, an over-valued currency, protectionist trade policies, tightening foreign exchange controls and Fernandez's decision to nationalize Argentina's private pension system and top oil company YPF have upset consumers, investors and trade partners.
Argentine bondholders and investors interested in the country's vast agricultural and shale oil resources watched the primary for signs that voters may be ready for a business-friendly leader, such as Massa, in 2015.
"The people of Buenos Aires have chosen a political force that will fight insecurity, fight inflation and fight high taxes," Massa said in his victory speech.
"Massa's victory is definitely market positive," said Alberto Bernal, head of emerging markets at Bulltick Capital Markets.
Partial vote counts in Cordoba, Santa Fe and Mendoza provinces showed Fernandez's political allies lagging the opposition as well.
Argentine bonds have outperformed the market so far this year, partly based on expectations that Fernandez will lose political clout as 2015 approaches.
Buenos Aires provincial government bonds due in 2020/21 have returned 13 percent so far this year while emerging market bonds in general are down about 10 percent, Bernal said.
"My sense is that tomorrow we'll see another pop in prices," he added. "Her chances of staying in office past 2015 are very low right now."
For Fernandez to run again she would have to increase her control of Congress in October, when half the seats in the lower chamber will be up for grabs, along with a third of the Senate.
Her allies would need a two-thirds majority in both chambers to get debate started on a constitutional change to permit a third term.
"She doesn't have that now and she won't have it after October," Labaqui said.
The president sponsored a list of primary candidates under her FPV (Frente Para la Victoria) coalition, a branch of the country's dominant Peronist party. She went on television late on Sunday vowing to campaign hard in the 2-1/2 months left before the congressional midterm vote.
"We are going to deepen the transformation (of the country)," she said. "We are going to keep working."
On the sidelines was Buenos Aires' popular governor, Daniel Scioli. He is officially allied with Fernandez but could step up to represent the FPV and run for president if her candidates do badly this year.
Scioli is seen as more of a centrist than Fernandez and would be embraced by business leaders.
Argentina's economy is expected to grow by about 5 percent this year despite looming fiscal troubles.
The country has steady money inflows from soy, corn and wheat exports. However, public spending has outpaced revenue as the October 27 vote approaches. Going into the primary, central bank reserves are at $37 billion versus $45 billion a year ago.
(Additional reporting by Guido Nejamkis and Alejandro Lifschitz; Editing by Kieran Murray, Eric Walsh and Stacey Joyce)