June 5 (Bloomberg) -- Alan Garcia, after claiming victory as Peru's next president, vowed to increase trade ties with the U.S. and challenge Venezuelan President Hugo Chavez's efforts to expand his influence in Latin America.

Garcia, 57, said Peruvians voted against the populist policies of Chavez that have been replicated in Bolivia and Ecuador. In April, Chavez called Garcia a ``thief'' and backed the Nationalist party's Ollanta Humala. Garcia won 53.2 percent of the vote in yesterday's runoff election to Humala's 46.8 percent, the Electoral Board said after counting most votes.

``The vote was a defeat for Chavez's expansionist plans that he is trying to implement in South America, his attempts to annex us to his retrograde model,'' Garcia told supporters last night. ``What was at stake here was our sovereignty, rejecting the pretensions of those who have oil wealth to dominate us.''

Peru's stock index rose 0.7 percent to 7755.09 at 3:03 p.m. New York time, a third day of gains, after earlier rising as much as 4 percent. The sol gained 0.6 percent to 3.2495 per dollar. The yield on Peru's 9 7/8 percent bond due in 2015 fell 7 basis points, or 0.07 percentage point, to 6.99 percent, according to JPMorgan Chase & Co. The price gained 0.50 cents on the dollar to 118.5.

Change

The attacks against Chavez help Garcia's attempts to show Peruvians he has changed since he was president in the 1980s and carried out his own populist agenda that led to higher spending, soaring inflation and a government debt default.

``The interference by Hugo Chavez and especially the way it was used in the interior of the country damaged the campaign,'' Carlos Tapia, spokesman for Humala's party, said in a press conference in Lima. ``People were almost expecting that if Humala lost, Venezuela would come in armed with AK47s.''

Garcia, who campaigned for ``responsible change,'' last night vowed to back a free trade agreement with the U.S., limit inflation and keep the budget deficit in check.

Annual inflation in Peru was 2.2 percent in May, the lowest among the 10 biggest Latin American economies. Peru's $68 billion economy had average annual growth of 5 percent between 2001 and 2005.

``We need to ensure the specter of inflation, that terrorized many of us, doesn't return to threaten our country,'' Garcia told about 5,000 supporters. ``We need to ensure the country grows, at the same time as it is decentralized and creates jobs.''

Garcia's speech was an attempt ``to reassure markets that he will be very serious about economic polices and won't make the same mistakes,'' Gianfranco Bertozzi, a Latin America economist with Lehman Brothers said in a telephone interview from New York.

Growth

Peru's benchmark stock index June 2 had its biggest gain since January on expectations Garcia would win the presidential election. The index has climbed more than eight-fold since outgoing President Alejandro Toledo took office in July 2001. The yield on Peru's 9 7/8 percent bond due in 2015 has fallen almost 4 percentage points since May 2004, according to JPMorgan Chase & Co.

The Finance Ministry estimates the economy, which is led by the mining and fishmeal industries, will expand as much as 6 percent this year, following growth of 6.7 percent in 2005.

Toledo's Possible Peru party fielded two candidates who dropped out early in the race when polls showed them with about 1 percent of the vote. Presidents in Peru serve five years and can't be re-elected for a consecutive term.

Garcia -- who at 1.93 meters-tall (6 feet, 4 inches) towers over most Peruvians, who stand 1.57 meters (5 feet, 2 inches) on average -- gained ground after the first-round vote in April by winning support from voters who had backed third-place candidate Lourdes Flores and wanted to ensure Humala didn't win.

``I never dreamed I would have to vote for Garcia,'' Mercedes Liria, a 40-year-old housewife, said in an interview after voting in Lima. ``But I had no option --with Humala as president, we'll be governed by Chavez.''

Free Trade, Clean Water

Garcia endorsed a free trade accord with the U.S., saying Peru needs to be part of the global economy. His campaign pledges also included providing clean water, particularly in the south, and ending illiteracy and hunger.

Thousands of Garcia supporters gathered outside the Apra party's headquarters last night in Lima to celebrate. ``Listen, Chavez, Alan has won,'' they chanted.

``With Alan Garcia, there will be social justice and better times for our people,'' said Angela Perez, 31, who attended the rally outside Garcia's campaign headquarters in Lima. ``We were all scared of Humala.''

Humala, 43, who became a public figure in 2000 when he took over one of Southern Copper Corp.'s mines in a failed uprising against the government, proposed in his campaign to raise corporate taxes, rewrite the constitution and make the government a partner in all mining and energy contracts. His party, the Union for Peru, won more congressional seats than any other party in April elections, followed by Garcia's party, the Popular American Revolutionary Alliance.

Chavez Influence

The makeup of congress means Garcia will have to contend with Humala -- as well as Chavez, said Fernando Rospigliosi, a political analyst at the Institute of Peruvian Studies in Lima. Venezuela is the world's fifth-largest exporter of crude.

``You know this isn't the end of it and I expect we'll be hearing more from Humala and Chavez, especially with all of his money,'' Rospigliosi said. ``The most important problem will be in the streets and not in Congress.''

Both Bolivia and Ecuador have followed Chavez's model of increasing state control over energy assets.

Second Bid

The presidential bid was Garcia's second since stepping down from power in 1990 amid quickening inflation that climbed as high as 8,000 percent and an escalating civil war waged by the country's Shining Path guerrillas. He lost the presidency to Toledo in a run-off vote in 2001, nine years after fleeing the country for France, claiming persecution by then-President Alberto Fujimori.

Garcia last night pledged to boost international trade as part of his ``national plan'' to generate more jobs and increase wages. The U.S. is Peru's largest trading partner, accounting for more than one-third of Peru's $17 billion in exports last year.

``The global economy will continue to favor the development of our country and there will be grave short-term consequences for us if we cut those ties,'' Garcia said.

To contact the reporter on this story: Alex Emery in Lima at at aemery1@bloomberg.net

Last Updated: June 5, 2006 16:57 EDT