By Terry Wade and Caroline Stauffer
LIMA (Reuters) - The daughter of a jailed former president faces the ex-army commander who tried to depose him in a presidential run-off on Sunday after a bruising campaign to lead Peru's young democracy and booming economy.
Left-winger Ollanta Humala, a career military man who has moderated his anti-capitalist views since narrowly losing the 2006 election, is nearly tied in polls with right-wing lawmaker Keiko Fujimori, 36, the favorite of the business community.
The tough race has tightened as Humala attacks Fujimori for having worked in the government of her father, Alberto Fujimori, who shut down Congress to consolidate power in 1992.
Firing back, the younger Fujimori has warned that Humala might roll back free-market reforms first implemented by her father that contributed to an unprecedented economic surge over the past decade after years of chaos and guerrilla wars.
To woo undecided voters in a run-off that has polarized the country, Fujimori has apologized for her father's excesses, while Humala has vowed to prudently manage the economy and respect foreign investors who plan to pour $40 billion into mining and oil projects in Peru over the next decade.
Investors are wary of Humala, however, and Peru's currency and stock market have slumped whenever opinion polls show him gaining ground.
"I believe it's one of the most important elections in Peruvian history because it will determine Peru's path forward," said Bill Richardson, a special observer for the Organization of American States and a former U.S. governor. "It is going to be extremely close."
Humala, who led an unsuccessful revolt in 2000 to demand the elder Fujimori step down, was the leading vote-getter in the first round of the election on April 10, appealing to the one third of mostly rural Peruvians still mired in poverty.
Fujimori, who is popular among the urban poor and women, squeaked through to the second round when three other candidates splintered the centrist vote.
Humala, 48, has taken to wearing ties, carrying rosary beads and emulating the conciliatory style of center-left leaders like Brazil's former President Luiz Inacio Lula da Silva.
But critics say Humala has not abandoned the hardline ideology instilled in him by his father, a prominent radical. They warn he would take over private firms and change the constitution to allow himself to run for consecutive terms like his one time political mentor, Venezuela's socialist President Hugo Chavez.
Those warnings have scared some Peruvians, who are enjoying growing wealth and remain haunted by the destabilizing hyperinflation and insurgencies of the 1980s and 1990s.
The elder Fujimori is credited for stabilizing the economy and defeating Marxist rebels, but his use of death squads against suspected leftists and widespread corruption saw him sent to prison for 25 years after he fled Peru in 2000.
Nobel laureate Mario Vargas Llosa, an outspoken conservative, has endorsed Humala, saying that the younger Fujimori lacks democratic credentials and depends on aides who served under her father. She has known some of them since she was 19 and was appointed Peru's first lady after her parents separated.
As she seeks to return to the presidential palace she called home as a young woman, she has sought to portray herself as an independent, hard-working mother who no longer relies on her father for advice.
"I am the one who makes decisions in my campaign ... I am the candidate, not Alberto Fujimori," she said on Sunday.
OVERSEAS VOTERS, PUNO PROTESTS
Polls show Fujimori has a thin lead over Humala of between 1 and 4.6 percentage points, in most cases within each poll's margin of error.
Both candidates are strongly disliked by up to half of all voters and Fujimori's campaign has suggested Humala's camp would protest loudly and refuse to concede defeat.
Despite the presence of foreign election monitors, Humala's aides have warned about the possibility of fraud, reminding voters that the elder Fujimori was widely blamed for manipulating the 2000 vote to win a third term.
Goldman Sachs has advised clients to expect a recount, which would cause even more volatility in the country's currency and stock market.
The outcome could hinge on votes cast by Peruvians living abroad. They make up about 2 percent of Peru's 19 million voters and pollsters say their votes would skew in favor of Fujimori.
The candidates say they would work to end nagging social conflicts over natural resources that could delay investments in one of the world's top minerals exporters.
More than 200 communities nationwide have organized to halt mining or oil projects, saying they cause pollution, hurt water supplies or fail to bring direct benefits to their towns.
The vote count could be tarnished by a protracted protest in the southern region of Puno by Aymaran Indians demanding the government revoke all mining concessions in the area.
The south is Humala's stronghold and he says he is worried not all votes will be counted if the protests drag on or if a temporary truce promised by protesters fails to hold.
"I implore the protesters to lift their blockade and allow traffic to move freely so that everyone can vote," Humala said on Tuesday. "The president of the country needs to make every effort to guarantee free elections."
(Additional reporting by Ursula Scollo, Teresa Cespedes and Marco Aquino; Editing by Kieran Murray)