(Adds closing peso level, sale of central bank notes)
By Scott Squires and Walter Bianchi
BUENOS AIRES, Oct 8 (Reuters) - Argentina's peso continued to rally on Monday while the country's stock market rose on the results of Brazil's presidential election, in which far-right candidate Jair Bolsonaro nearly clinched the presidency in a first-round win.
Bolsonaro, an ex-military officer who is campaigning on a promise to tackle corruption and roll back the state's economic footprint, won 46 percent of the vote on Sunday.
He will now face leftist Fernando Haddad in a polarizing runoff election scheduled for October 28.
The election results boosted Argentina's Merval stock index 1.66 percent by late afternoon, largely thanks to a 10 percent gain in locally traded shares of Brazil's state-controlled oil firm Petrobras.
"Argentine markets like Bolsonaro because he has made promises to limit state involvement and lower taxes in Brazil. If he wins, it could be a boon for Argentine exports to Brazil in the medium term to long term, offering much needed stability and a more orderly economic transition in Argentina," economist Leonardo Chialva at local brokerage Delphos Investments said.
Following strong gains last week, Argentina's peso currency closed 0.80 percent higher on Monday at 37.60 per U.S. dollar. The central bank issued 82.996 billion pesos ($2.2 billion) in short term notes at an average annual interest rate of 73.524 percent, traders said.
Monetary policymakers say they will keep interest rates above 60 percent until December in a bid to combat rising inflation, which is expected to surpass 44 percent in 2018, according to the most recent central bank poll.
The bank is issuing the short-term notes known as "Leliqs" on a daily basis to soak up excess peso liquidity that might otherwise seek the safety of the greenback.
The peso has weakened by about 50 percent against the dollar so far this year, even after gaining almost 9 percent last week under the terms of a freshly renegotiated standby financing deal with the International Monetary Fund.
The U.S. bond market was closed in observance of the Columbus Day holiday. While the foreign exchange market was open in the United States, many traders took the day off. (Reporting by Walter Bianchi, writing by Cassandra Garrison and Scott Squires Editing by Daniel Flynn and Chizu Nomiyama)