(New throughout, adds comments from analysts)
By Hugh Bronstein and Rodrigo Campos
BUENOS AIRES/NEW YORK, Sept 6 (Reuters) - Argentine markets strengthened again on Friday after capital controls imposed this week helped arrest a sharp plunge in the peso currency and local bond prices, but investors said the outlook remained shaky.
The peso edged higher and finished the week with a 6.6% gain. The currency had lost around a quarter of its value in August after a landslide win by populist-leaning presidential challenger Alberto Fernandez in the Aug. 11 primary.
The country's over-the-counter (OTC) bonds rose an average 2% as Argentina's risk index fell back. Debt prices had fallen to record lows and remained deeply discounted.
The Merval stock index rose 3.5%.
Analysts said global investors are bracing themselves for more wild swings in Argentine assets as Macri, hobbled by his primary election defeat, tries to keep the country out of default.
"I think it's very unlikely that we've seen the end of the volatility," said Alejo Czerwonko, emerging markets strategist at UBS Global Wealth Management.
He said the government and opposition need to work together with creditors to restore calm given Macri's weakened state.
"The individual with the ability to implement policy doesn't have the credibility to implement it because most folks out there believe he won't be in power in three months time."
Macri, a free-market champion who came to power in 2015, is expected to lose the Oct. 27 general election to Fernandez, whose running mate, populist ex-leader Cristina Fernandez de Kirchner, is frowned upon by global investors and big business.
"The perception that President Macri will soon be replaced is now a key obstacle to any lasting deal between Argentina and its creditors," Capital Economics said in a note on Friday.
"This period of uncertainty could last until Dec. 10, when the next president will take office."
So far, investors have cheered Macri's moves to stem the currency rout. Some said asset prices already reflected uncertainties ahead.
"Current pricing already includes a fair amount of the risks involved," said Alberto Bernal, chief emerging markets strategist at XP Investments in New York.
Fernandez has tried to ease fears by having his economic adviser, Guillermo Nielsen, hold calls with foreign creditors over the past week, investors said. Nielsen was the country's chief debt negotiator following a default in 2002.
Fernandez nonetheless struck a populist note during a trip to Madrid on Thursday, which has some foreign investors nervous.
After the primary vote, Argentina's over-the-counter sovereign bonds fell an average 39.4% in August before bargain hunters stepped in this week. Prices rose 7.5% on Wednesday and Thursday.
Last year, Macri agreed a $57 billion credit line with the International Monetary Fund (IMF). Now he has been forced to roll out plans to delay payments on around $100 billion of debt, evoking memories of Argentina's 2002 default.
While markets have stabilized, the economic outlook has dimmed. Economists polled by the central bank raised their inflation forecast for the year to 55% and cut their outlook for the economy, expecting it to shrink 2.5%. (Reporting by Jorge Otaola and Hugh Bronstein in Buenos Aires and Rodrigo Campos in New York; Writing by Adam Jourdan Editing by Chizu Nomiyama, Marguerita Choy and David Gregorio)