UPDATE 1-Argentine provincial vote points to election challenge for Macri - and Fernandez

A regional vote in Argentina's Cordoba province, the country's second largest voting district, has underscored rising discontent with the political status quo in the recession-hit nation as it heads for presidential elections in October. The key farming province strongly re-elected governor Juan Schiaretti, part of the moderate Peronist flank challenging President Mauricio Macri but which has also distanced itself from the more militant Cristina Fernandez de Kirchner.

Amid economic turmoil that has battered Argentina's markets, job losses and stubborn inflation, hard-hit voters have been losing faith in Macri, though many are wary of turning back to former President Fernandez, seen as the likely main contender. Schiaretti won around 55% of the regional vote, a sharp jump from around 40% in the previous election in 2015, putting him far ahead of rivals affiliated with Macri's Cambiemos party. There was no candidate tied to Fernandez.

"Schiaretti's resounding victory will likely leave him positioned as one of the most important governors and leaders within moderate Peronism," Credit Suisse said in a note after the results. The bank added the wide margin of victory was not a great sign for Macri, but pointed out that Schiaretti had shown willingness to work together with the president previously and had eschewed Fernandez's policies.

"He distanced himself from former President Cristina Fernandez de Kirchner after her administration's conflict with the agricultural sector in 2008 and has not given any indication that this will change," Credit Suisse said. The Cordoba elections are seen as a potential indicator of how the ruling party could fare in presidential elections later this year, though the lack of a Fernandez-backed candidate and a split Cambiemos vote make it hard to read clearly.

Macri has seen his popularity slipping in opinion polls, even as archrival Fernandez has gained. More centrist opposition candidates, such as former economy minister Roberto Lavagna, are positioning themselves between Macri's International Monetary Fund-backed austerity economics and the more fiery populism of Fernandez.

Candidates affiliated with Macri's Cambiemos party, Mario Negri and Ramón Mestre, won 17.65% and 11.11%, respectively. (Reporting by Adam Jourdan and Hernan Nessi; editing by Jonathan Oatis)

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