(Recasts with bond prices and equities market) BUENOS AIRES/NEW YORK, Nov 15 (Reuters) - Argentine bonds gained strongly on Monday after a heavy defeat for the ruling Peronists in midterm elections, with investors hopeful the loss could force a shift to more moderate policies as the government reaches across the aisle in Congress. Argentina’s over-the-counter bonds climbed 1.7% on average, led by the ‘Bonar 30’. A benchmark 2035 sovereign bond, issued in a restructuring last year, was up some 0.75 cents to roughly 31 cents on the dollar. The local S&P Merval equities index meanwhile was down as investors looked to take profits after recent rises. Investors in Argentina generally see a silver lining in the congressional vote, saying it could create a shift towards more orthodox economic policies. Others worry a bruised government could adopt an even more populist stance. The conservative opposition won key swing Congress races around the country on Sunday, erasing the Peronists’ Senate majority, which will force President Alberto Fernandez to work across the aisle to push through new legislation. “The most relevant result in our view is that the government bloc lost the Senate majority,” said Diego Pereira, JP Morgan’s chief economist for the Southern Cone in a note. He called it a “blow” to the more populist wing of the government led by Vice President Cristina Fernandez de Kirchner. The vote backed up the result of an open primary election in September that sparked a major Cabinet reshuffle and created rifts in the ruling party. President Fernandez late on Sunday struck a conciliatory tone and asked for cross-party cooperation. “The market is likely to take a net positive view of the election results,” said Alberto Ramos, head of economics for Latin America at Goldman Sachs, in a note. Voters seem to have rejected the current policy mix and its results, he said, pointing to “very high inflation coupled with declining economic and wage growth.” “But there is also the risk of more populist near-term policies,” Ramos added. Investors in the South American country generally see the conservatives as more market-friendly and are wary of the center-left Peronist government of Fernandez and his powerful Vice President. “CALM THE MARKETS” The election loss could on the other hand lead to more division within the ruling Peronists and see a potential power grab by more hard-left factions allied to Fernandez de Kirchner, and hobble more moderate voices such as Economy Minister Martin Guzman. But it also gives momentum to the opposition, which investors may see as a positive ahead of the 2023 presidential vote. And with sovereign bond prices stuck in distressed territory for months, after the 2020 debt restructuring, much of the risk is already priced in. “The value of the bonds already reflected a situation of great uncertainty, so I believe the result itself will not change (prices) too much,” said Santiago Bulat, an economist with the consulting firm Invecq. The local-currency stock benchmark has hit a string of record highs this year, most recently last Tuesday, as locals buy into stocks amid a weakening currency and as spiking inflation erodes the value of their savings. The official peso has lost 16% of its value to the U.S. dollar this year in a controlled devaluation, but the informal exchange rate is nearly double the official rate. Annualized inflation is running above 50%. “The government must calm the markets, communicating a more orderly fiscal and monetary policy,” said Rodrigo Álvarez, a Buenos Aires-based economist and financial consultant. “A plan to stabilize things is needed.” Reporting by Jorge Otaola and Rodrigo Campos; Additional reporting by Marc Jones in London; Editing by Adam Jourdan, Ana Nicolaci da Costa and Hugh Lawson