NEW YORK (Reuters) -Argentina's looming elections are the main risk to bullish market bets as a wave of U.S. financial support for President Javier Milei's libertarian economic policies does not guarantee that voters will back his minority party, investors say.

Milei's right-wing politics have endeared him to President Donald Trump's administration, while his spending cuts and focus on inflation have given investors some of the best returns among emerging markets since he took power in December 2023.

But recent electoral setbacks for Milei's party, fueled by corruption allegations reaching his inner circle, have hurt the leader's popularity, a key indicator for investors, hammering the peso and government bonds.

His La Libertad Avanza party wants to increase its seats in both chambers in the October 26 vote so that he can advance his austerity and free-market overhauls of South America's second-largest economy, which has a history of defaults and other financial crises.

FEARS THAT U.S. LIFELINE WILL END

Argentine assets rallied on Thursday, ahead of a Friday market holiday, after the U.S. Treasury bought an undisclosed amount of pesos on the open market and completed a $20 billion swap framework with Argentina's central bank. On Friday, international bonds gave back a fraction of Thursday's gains, as did stocks traded on U.S. exchanges.

With the U.S. lifeline easing some of the market pressure, the focus on the midterm election intensifies.

"The markets are hoping Milei does well. The issue now becomes, if he does not do well, how much support continues to be given from the U.S.?" said Jason DeVito, senior portfolio manager for emerging market debt at Federated Hermes.

"If it is not perceived that the actions from the United States are enhancing Milei's party or the coalition's ability to do well in the midterms, there's probably a fear that this type of support doesn't continue."

Treasury Secretary Scott Bessent offered no timeline for future interventions and his department did not respond to requests for comment on the specifics of the swap or how long the peso purchases would continue.

More details of the U.S. lifeline are expected after Milei meets Trump at the White House on Tuesday.

ELECTION KEY TO MILEI AGENDA

Polling has shifted in recent weeks in Argentina, with corruption overtaking inflation as voters' top concern. Opposition Peronists hope to build on their unexpectedly wide victory in Buenos Aires provincial elections last month, which unnerved markets.

Keeping a lid on market uncertainty is positive for a government that had lost control of the narrative amid scandals - from Milei touting a cryptocurrency that soon crashed to a bribery probe. Milei has not commented on that incident and has not been accused of impropriety.

The U.S. support is an opportunity to regain that control, said Juan Germano, founder of pollster Isonomia in Buenos Aires.

The Argentine electorate is split on its views of the U.S. backstop, "but for the part that Milei wants to convince to vote, and was largely absent in the Buenos Aires vote last month, it is positive."

A bill passed last week by the lower house to curb the power of presidential decrees makes the midterms even more important for Milei's economic overhaul to continue.

"There is a question, if the U.S. Treasury actually has the ability to stabilize markets, whether this will sway voters in the midterm," said Heidi Crebo-Rediker, a senior fellow at the Council on Foreign Relations and former chief economist at the State Department, adding there should be bipartisan U.S. support for seeing Argentina succeed.

"It could cut both ways, because if Milei does poorly on the 26th he will not be able to push as radical a reform package as he has been able to do for the first two years, and markets will put pressure on whatever safety net the Treasury Department has put in place."