The leading candidate for Brazil's October presidential elections has spelled out his economic policies to reassure foreign investors.

Luiz Inacio Lula da Silva of the leftist Workers Party (PT) issued a "Letter to the Brazilian people", promising to pay the country's debts, keep inflation under control and maintain a balanced budget.

I want to reaffirm my historic commitment to combat inflation, but while allowing growth, job creation and income distribution

Luiz Inacio Lula da Silva

"We are going to preserve the... surplus, the control over the public accounts and the low inflation goals," Mr Lula told Argentina's Clarin newspaper after releasing the letter.

The financial markets have been panicked by opinion polls showing Mr Lula could win the presidency and the implications that could have for continent's largest economy and its $274bn debt.

Latin American countries are already experiencing serious economic difficulties because of Argentina's on-going financial crisis.

Mr Lula has tried repeatedly in recent weeks to calm investors and PT officials said the letter was meant to clearly state its pledges to investors.

Failed model

"The predominant sentiment among all classes and all regions is that the current model is worn out," Mr Lula's letter said.

"For this reason, the country cannot insist on this path under the threat of chronic stagnation or even, sooner or later, an economic, social and moral collapse."

Silva promises to keep inflation down

But he added his economic policies would show "respect for the country's contracts and obligations."

Some investors had been unnerved by past talk of debt renegotiation and fears his victory could reverse President Fernando Henrique Cardoso's free-market policies.

Mr Lula's candidacy was given a boost last week when the small conservative Liberal Party came out in support of him and his running mate Jose Alencar, a leading industrialist.

Left leads

"We want a balanced fiscal situation in order to grow, not just to show our accounts to creditors," Mr Lula said.

"We will preserve the primary surplus as long as it is necessary to stop our internal debt from increasing and from destroying confidence in the government's capacity to honour its commitments," he said.

Mr Lula said he understood the importance of keeping inflation under control, which Mr Cardoso touts as his biggest achievement.

"I want to reaffirm my historic commitment to combat inflation, but while allowing growth, job creation and income distribution," he said.

According to recent polls, Mr Lula has a 20% lead over Jose Serra, who investors see as the successor candidate for Mr Cardoso market-friendly policies.

The PT will unveil a more detailed economic platform at its convention on Saturday 29 June.

Central Bank intervention

Meanwhile Brazil's central bank has tried to reassure investors about the country's economic strength after intervening in the markets to prop-up the currency.

The 'real', which was created in 1994, is trading at a historic low against the US dollar after Brazil drew down $10bn from an existing International Monetary Fund loan.

Central Bank President Arminio Fraga travels to Paris and London this week to meet investors.