Oct. 16 (Bloomberg) -- Ecuadorean bonds had their biggest gain in at least six years after banana magnate Alvaro Noboa scored a surprising victory in the first round of presidential elections, putting him in a runoff against former Finance Minister Rafael Correa.

Noboa's unexpected surge to the top spot in the first round is fueling demand for Ecuadorean debt on optimism that he can defeat Correa, who has vowed to default on the government's debt, in the Nov. 26 runoff. Noboa, who promised to create jobs and lure investment, won 26.7 percent of the vote yesterday while Correa took 22.5 percent, based on a count of 70.6 percent of the ballots.

This ``increases the chances that a more market friendly and less disruptive policy platform prevails over Correa's heterodox and radical policy proposals,'' said Alberto Ramos, senior Latin America economist at Goldman Sachs Group Inc. in New York.

Ecuador's dollar-denominated bond maturing 2030 jumped 5.85 cents on the dollar to 97.6, its biggest gain since the government issued it in 2000, at 9:09 a.m. in New York, according to JPMorgan Chase & Co. The bond's yield, which moves inversely to the price, fell to 10.29 percent from 10.98 on Oct. 13.

Polls in the weeks leading up to yesterday's contest predicted Correa, 43, would win the first round and that Noboa, 55, whose holdings include coffee plantations and banks, would place as low as fourth.

The government sold the 2030 bond as part of a restructuring of $6.5 billion of debt it defaulted on in 1999.

Recovery

Ecuador's economy recovered from recession after the default and the government adopted the use of the dollar as the country's official currency in 2000.

The switch to the dollar attracted investors, revived an insolvent banking system and helped reduce the inflation rate to 2.1 percent last year from 108 percent in 2000. In 2005, the economy expanded 4.7 percent, according to Standard & Poor's.

Ecuador's 13.3 million citizens, the majority of whom live in poverty, are demanding a greater share of the nation's oil and banana wealth. The nation is South America's fifth-largest producer of crude and the world's biggest banana exporter.

Correa, an economist who served a four-month stint as finance minister in 2005, may have scared some voters by his plan to dissolve congress and scrap free trade talks, said Gianfranco Bertozzi, a Latin American economist at Lehman Brothers Holdings Inc. in New York. Chavez yesterday suggested he backed Correa by saying Ecuador's voters ``have for years suffered the burden of very high foreign debt. Today they have the chance to wake up.''

Stability

After seven presidents in a decade, Ecuador is seeking a new leader who will remain in office a full term, said Mark Weisbrot, co-director of the Center for Economic and Policy Research in Washington.

A total 13 candidates ran to replace Alfredo Palacio, who took office in April 2005 after Lucio Gutierrez, the nation's last elected president, was ousted from office amid allegations he stacked the Supreme Court with allies and helped clear an ex- president of corruption charges.

``I almost chose Correa but his politics frighten me; they will just bring further problems,'' said Alfredo Montenegro, 49, as he pressed wet plaster into a mould at his restoration studio in central Quito. ``He will be around six months, a year at the most. That's the last thing Ecuador needs.'' Montenegro voted for Leon Roldos, who placed fourth, according to preliminary results.

`Astute'

Born in Guayaquil, on the Pacific coast of Ecuador, Correa studied economics in Belgium and later at the University of Illinois at Urbana-Champaign. Correa was appointed finance minister in April 2005 by Palacio and fired four months later for fighting with the World Bank and arranging to sell bonds to Venezuela without providing details to the president.

He has pledged to abandon free trade talks with the U.S. and seek popular support to dissolve congress -- which he has called a ''sewer'' -- and replace it with a constituent assembly in a similar way to Chavez.

Correa, whose name means belt in English, brandishes the leather during campaign speeches to symbolically beat lawmakers and corrupt officials. He also has said he will cut ties with lenders such as the World Bank and International Monetary Fund.

``He's a very astute and serious guy, but will have a lot of opposition,'' said Weisbrot. ``If he can manage the distribution of wealth in Ecuador, he's in with a chance.''

Bible

Noboa, a Catholic who carries a Bible when he speaks on the campaign trail and makes regular references to God, has promised to sell government bonds to build 300,000 low-cost homes a year and create 3 million jobs. Noboa hands out computers and money to the poor in a country that's more than 90 percent Catholic.

``Those who want democracy, employment and housing will vote for Alvaro Noboa,'' Noboa, who in 1996 was appointed president of Ecuador's monetary board, said yesterday during celebrations in Guayaquil.

The son of one of Ecuador's richest plantation owners, Noboa made his money in real estate before taking control of his father's company after a nine-year legal battle with his sisters. He now controls more than 100 companies including banana exporter Corporation Noboa in Guayaquil, banks, tropical fruit farms and coffee plantations.

``I'm a laborer and Noboa just makes more sense to workers,'' said Pedro Borja, 31, who works in a bread factory in Quito. ``He promises to make jobs and that might be helpful to me some day.''

`Dirty Campaign'

Correa reiterated in an interview Oct. 12 that he wouldn't rule out an Argentine-style default on Ecuador's $11 billion of foreign debt. Argentina stopped payments on $95 billion of bonds in late 2001, the biggest sovereign default ever.

He also said the adoption of the U.S. dollar as Ecuador's currency was a mistake, a position he has stated many times before.

``There have been campaigns saying that this will be a new Cuba and that I will take the country off the dollar,'' Correa said at a press conference yesterday in Quito. ``That's a dirty campaign.''

Correa claimed irregularities in the voting process as he cast his ballot yesterday in Quito.

To contact the reporter on this story: Helen Murphy in Bogota at Hmurphy1@bloomberg.net

Last Updated: October 16, 2006 09:13 EDT