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interventionist economics@ (Adds markets, quotes)
BUENOS AIRES, Aug 12 (Reuters) - Argentina's beleaguered peso currency collapsed on Monday and inflation was expected to rise as voters flirted with a return to interventionist economics by snubbing market-friendly President Mauricio Macri for the opposition in Sunday's primary vote.
The peso weakened 30.3% to a record low of 65 per U.S. dollar on Monday, traders said, after opposition candidate Alberto Fernandez - whose running mate is former president Cristina Fernandez de Kirchner - dominated the primary by a much wider-than-expected 15.5 percentage point margin.
Fernandez has said he would seek to "rework" Argentina's $57-billion standby agreement with the International Monetary Fund if he won October's general election.
Argentine stocks were among the top losers on the Nasdaq and the local Merval stock index was down 28%. Falls of between 18-20 cents in Argentina's benchmark 10-year bonds left them trading at around 60 cents on the dollar or even lower.
The comprehensive victory by Peronists Fernandez and Kirchner "paves the way for the return to left-wing populism that many investors fear," consultancy Capital Economics said in a note to clients.
"With a renewed focus on sovereign default risks, bonds, equities and the peso will come under severe pressure in the coming days. That said, falls in the currency might be tempered by intervention in the foreign exchange market," it said.
Macri, a scion of one of Argentina's wealthiest families, came to power in 2015 on promises to kick-start Latin America's third-largest economy via a liberalization wave.
But the promised recovery has not materialized and Argentina is in recession with inflation at over 55%.
An acute financial crisis last year hit the peso and forced Macri to take the IMF loan in return for pledging to balance Argentina's deficit.
Despite Macri's struggles, investors see the Fernandez ticket as a riskier prospect due to the opposition's previous interventionist policies.
Argentina's main political parties had already chosen their presidential nominees, allowing the primary to serve as the first concrete measure of voter sentiment after opinion polls showed a narrow margin between Macri and Fernandez.
"We will probably see inflation rising, assuming the peso doesn't recoup some of those loses," said Edward Glossop, Latin America economist for Capital Economics.
"The key point there is that high inflation means the peso will need to continue to weaken to maintain its competitiveness," Glossop added. He said it was "completely feasible" for the peso to drop to as low as 70 per U.S. dollar.
Fernandez said the market reactions were in response to Macri's failures on the economy.
"Markets react badly when they realize they were scammed. We are living a fictitious economy and the government is not giving answers," Fernandez said in a radio interview Monday morning.
Voters were given a stark choice to stay the course of painful austerity measures under Macri or return to economic policies that are heavy on state involvement.
Kirchner imposed strict currency controls that slammed investment during her 2007-2015 administration. She feuded with the country's key farm sector over export taxes and presided over a multi-year standoff with bondholders that kept Argentina locked out of the international capital markets.
"I would say they (bonds) are pricing in a much higher probability of a default," said Aberdeen Standard EM portfolio manager Viktor Szabo.
Szabo did add however that they were still above the 40 cents level that would truly reflect a fully fledged default.
Fernandez prevailed on Sunday in the majority of the country's provinces, but one of the starker differences was seen in the poor suburbs of Buenos Aires. In the district of La Matanza, home to nearly two million people, Fernandez won 62.6% of the votes compared to Macri's 19.4%.
Macri has struggled to maintain voter support in the face of increased poverty and unemployment. One of the risks to his support was newly impoverished Argentines who were more energized to vote to punish him at the polls, political analysts said.
Analysts predicted Sunday's results could be the final nail in the coffin for Macri.
"Macri has already implemented a number of short term measures to try and shore up support ahead of the October vote. Additional promises can be made, but the gap he needs to make up is a very wide one," said Ilya Gofshteyn, senior emerging markets strategist at Standard Chartered Bank.
The primary result indicated that Fernandez had enough support to clinch the presidency in October's first round, without having to go to a November run-off election.
A candidate needs at least 45% of the vote, or 40% and a difference of 10 percentage points over the second-place runner, in order to win the presidency outright.
(Reporting by Cassandra Garrison and Hugh Bronstein; additional reporting by Marc Jones in London; Editing by Mark Heinrich and Alistair Bell)