Oct. 4 (Bloomberg) -- Brazilian President Luiz Inacio Lula da Silva's Workers' Party won mayoral races in six state capitals and had candidates leading in three others, putting it on track to increase control of the nation's largest cities.

In Sao Paulo, Mayor Marta Suplicy, a Lula ally, was headed for a runoff vote Oct. 31 after placing second to Jose Serra, who made a failed bid for the presidency in 2002, according to figures published on the Superior Electoral Court's Web site with almost all of the votes counted. Prior to the election, Lula's party ran seven of the nation's 26 state capitals.

The Workers' Party's gains would offset a possible loss in Sao Paulo, Brazil's biggest city with a population of 18 million, said John Welch, chief Latin American strategist at Lehman Brothers Inc. in New York. Lula, 58, campaigned on behalf of Suplicy, a former TV sex therapist who is seeking re-election on promises to improve education, health care and transportation for the poor.

``The Workers' Party looks like it's going to lose Sao Paulo but that's not Lula's fault -- it's Marta's,'' said Welch in an interview from New York. ``Both sides can say they're winning and as an investor I'm comfortable with that. It'll help keep some of the more extreme trends in the Workers' Party at bay.''

The mayoral elections yesterday in more than 5,500 cities were a test of support for Lula's administration two years after the former union leader was elected. Lula, whose government cut inflation in half, reduced unemployment and helped spur the fastest economic growth in eight years, is gaining popularity across the country, said Jose Genoino, the Workers' Party president, in a statement on the party's Web site.

388 Cities

The Workers' Party doubled its number of mayors to 388 this election from 193 four years ago, the court said. The party, founded in 1980, aimed at boosting its number of mayors fourfold to about 800, Genoino said in a June interview.

``The party did well nationwide but in order to win Sao Paulo we need to lure the leaderships of other parties on to our campaign,'' Genoino said. ``We will have more chances in the runoff races.''

Candidates needed to win more than 50 percent of the vote to avoid a runoff election Oct. 31.

Workers' Party members won six races in capital cities outright in the first round, including incumbents in Belo Horizonte, Aracaju and Recife, and will be in a runoff in another 10 capitals. In three of those races -- Vitoria, Porto Alegre and Porto Velho, -- Workers Party' candidates led in the first-round voting.

Positive Reaction

``Preliminary results confirm that the Brazilian people are reacting positively to the pickup in economic growth and reduced financial instability that have resulted from the government's sustained implementation of sound policies,'' said Mohamed El- Erian, who manages about $15 billion of emerging-market bonds at Pacific Investment Management Co. in Newport Beach, California, in an e-mailed statement.

Serra, who lost a presidential bid to Lula two years ago, won 44 percent of the vote for Sao Paulo mayor to 36 percent for Suplicy, according to the preliminary results.

Suplicy, 59, became mayor four years ago in the biggest victory for the Workers' Party until Lula's election in 2002. Serra, 62, a former health minister, will seek support from voters who backed Paulo Maluf, a former Sao Paulo mayor, in the first-round vote, said Cristiano Noronha, an analyst with Brasilia-based political risk consulting company Arko Advice.

``All votes, including votes from Paulo Maluf, are welcome,'' Suplicy said at a press conference at her campaign headquarters in Vila Mariana, in Sao Paulo. ``It's now time for me to go out look for each voter and seek their votes.''

Serra Backing

Maluf won 12 percent of the vote, according to early returns. Noronha said as much as 70 percent of the voters who backed Maluf probably will endorse Serra in the runoff.

In Rio de Janeiro, Brazil's second-largest city by population, Mayor Cesar Maia of the Liberal Front Party won a third term with 50.1 percent of the vote to 21.8 percent for the Liberal Party's Marcelo Crivella, according to returns based on almost all of the votes counted.

In Porto Alegre, Raul Pont of the Workers' Party will face Popular Socialist Party's Jose Fogaca in a runoff. Lula's party has been in control of Porto Alegre, Brazil's fourth-largest city, for the last 16 years. Pont, who won 38 percent of the votes, is a founding member of the Workers' Party and has criticized Lula's economic policies.

Lula Home

In Sao Bernardo do Campo, where Lula helped found the party 24 years ago, Vicente Paulo da Silva lost to the Brazilian Socialist Party's William Dib. The Workers' Party candidate lost in Sao Caetano do Sul.

In Ribeirao Preto, Finance Minister Antonio Palocci's political base, Workers' Party candidate Gilberto Maggioni finished third, and a runoff will be held between Welson Gasparini of the opposition Social Democracy Party and Baleia Rossi of the Democrtic Movement Party. The Workers' Party had governed Ribeirao since 1992.

Jose Carlos Becker de Oliveira, son of Cabinet Chief Jose Dirceu, won the election outright in Cruzeiro do Oeste, a city of 20,000 people in the southern state of Parana. Zeca Dirceu, as Becker is known, obtained 72 percent of the vote in a candidacy backed by the Workers' Party and another 11 parties.

Lula's coalition, comprised of nine parties, will probably win 16 of Brazil's 26 capital cities in the second-round vote, extending gains from four years ago, according to a Credit Suisse First Boston report published last week.

To contact the reporter on this story: Guillermo Parra-Bernal in Sao Paulo at at gparra@bloomberg.net

Last Updated: October 4, 2004 11:10 EDT