SAO PAULO (Reuters) - Opposition leader Aecio Neves, who vows to shake up Brazil's stagnant economy with fiscal austerity and pro-market policies, is chipping away at President Dilma Rousseff's lead four months from election day, a poll published on Saturday showed.
Neves, a senator and former governor of Brazil's second richest state Minas Gerais, will be nominated later on Saturday by his centrist PSDB party to run for president and challenge Rousseff's re-election bid.
Rousseff dropped to 32.2 percent this month from 34 percent in a previous poll in April, while Neves climbed to 21.5 percent from 19.9 percent, the polling firm Sensus said.
The poll confirmed the results of other recent surveys that predict Rousseff will not win enough votes on Oct. 5 to avoid a bruising second round.
Rousseff is still favored to win a runoff by 37.8 percent against 32.7 percent for Neves, but the gap between them has narrowed to 5.1 from 6.7 percentage points in April, according to the Sensus poll.
The polls suggest the October election could be the toughest for the ruling Workers' Party since it came to power in 2003 led by Rousseff's predecessor and mentor, former union leader Luiz Inacio Lula da Silva.
Polls showing declining support for Rousseff has boosted the Sao Paulo stock market, which hit a seven-month high on Wednesday, as investors bet on a move away from state intervention in the economy under Rousseff's government.
Neves, 54, plans to restore vitality to Brazil's once booming economy by adopting more business-friendly policies and curbing inflation by cutting back on the expansion of public spending to less than the GDP rate of growth.
But in an interview with Globo TV broadcast on Friday, Neves warned that a fiscal adjustment would not happen overnight and it could take two or three years to bring inflation down to the center of the government target of 4.5 percent, from close to the ceiling of 6.5 percent at present.
"Our government will create a more serene and propitious climate for the market, which is important to recover investments and grow," Neves said.
"We will have a more austere and transparent fiscal policy than we have today," he said. "People want to trust again in government numbers, the fiscal policy and inflation targets."
Neves called Rousseff's intervention in the electricity sector "perverse" and said her government's attempt to lower power rates scared off investors and cost taxpayers 30 billion reais ($13.50 billion) (7.96 billion pounds)so far.
Neves said he would maintain the social programs that have helped reduce poverty in Brazil under the Workers' Party. But he plans to reduce the size of federal government and establish a meritocracy based on performance like he did in Minas Gerais.
(Additional reporting by Jeferson Ribeiro in Brasilia; Writing by Anthony Boadle; Editing by Stephen Powell)