By Antonio De la Jara and Dave Sherwood
SANTIAGO (Reuters) - A strong performance by Chile's left-wing parties in Sunday's elections left conservative presidential frontrunner Sebastian Pinera facing a tight battle to win a December runoff and likely opposition to tax breaks in Congress if elected.
Pinera came first with more than 36 percent of the vote, but his two main leftist rivals made a stronger-than-expected showing, garnering a combined 43 percent between them.
That unnerved financial markets, which had seen the billionaire former president as a shoo-in. Chile's stock index sank more than 3 percent on Monday and the peso currency tumbled.
Thanks to a surprise surge by a new leftist grouping, Broad Front, left-of-center lawmakers will outnumber Pinera's Let's Go Chile voting bloc in both houses of Congress, official results showed on Monday. But no voting bloc will have an absolute majority in either house.
This would not bode well for Pinera's plans to cut the corporate tax rate and slash red tape to woo new investments to Chile, the world's top copper producer.
A Pinera victory in the Dec. 17 runoff for the presidency, long priced into markets, is no longer a sure thing, said election forecaster and political scientist Kenneth Bunker.
"It's all up in the air right now," Bunker said. "We were just dumbfounded when the results started to come in."
Pinera, who governed Chile from 2010 to 2014, came in five percentage points short of the tally predicted in final polls before Sunday's vote.
His runoff opponent, center-left Senator Alejandro Guillier, secured two percentage points more than expected. But the main surprise of Sunday's vote was Broad Front candidate Beatriz Sanchez, who garnered twice as many votes as forecast.
In another bad sign for Pinera, voters went to polls in bigger numbers than expected on Sunday, considered by analysts to be bad for the conservative if repeated in the runoff. Voter turnout in the first-round was nearly 47 percent, above CEP's expectations of 44 percent.
ECONOMY HAS SLOWED
Chile, a country of 17 million people with a $250 billion economy, has been one of Latin America's most business-friendly and stable nations since its transition to democracy in 1990.
Its economy slowed, however, to an average growth rate of 1.8 percent during outgoing President Michelle Bachelet's term, with lower copper prices dragging on government revenue.
Guillier has promised to deepen Bachelet's progressive policies, from expanded access to free university education to protections for striking unions, without departing from Chile's free-market economy.
However, winning an endorsement from Sanchez - who has proposed new taxes on the mining industry and the "super rich" - could pull him sharply to the left.
Having slammed Pinera as a "step backward" for Chile, Sanchez could rally her energized supporters to vote against Pinera but could demand policy concessions.
"If Mr. Guillier wants us to vote for him, he's going to have to give in to Beatriz's proposals," Sanchez supporter and salesman Hector Mino said. He cited Sanchez' plan to wipe out student debt and overhaul the public-private pension system to ensure bigger payouts as possible offerings.
But as left-leaning blocs weighed possible alliances, Pinera received a rapid endorsement from far-right Jose Antonio Kast, who was knocked out of the first round race of eight candidates but won nearly 8 percent of votes.
"We're not going to demand anything in return or condition our support" for Pinera, said Kast, who defended deceased Chilean dictator Augusto Pinochet during the campaign.
(Reporting By Antonio de la Jara and Dave Sherwood, Additional Reporting by Mitra Taj, Felipe Iturrieta and Reuters TV; Editing by Steve Orlofsky)