BUENOS AIRES (Reuters) -Argentina's markets enjoyed the glow on Monday of a mood-boosting local election win by the party of investor-friendly libertarian President Javier Milei, which analysts said put him in good stead ahead of more important ballots later this year.

Milei's party won the most votes in legislative elections in wealthy capital Buenos Aires, beating pollsters' forecasts. The win gives Milei just a few more seats in the city's legislature, but is symbolic of his rising fortunes.

"The bulk of the support was all to do with Milei," said Buenos Aires-based political consultant Shila Vilker with Trespuntozero, adding it was a "resounding win" for Milei's brash brand of austerity and deregulation.

"It's a confirmation of the course they're on."

While Milei is divisive, he has kept voters on his side by bringing down what was triple-digit inflation via tough spending cuts and reducing monetary emissions, moves that have won him plaudits from investors and the International Monetary Fund.

The latest vote suggests his political footing remains firm, which markets have cheered - even if the real-life impact of the vote is limited, with his party still holding a minority in the city's legislature after the victory.

On Monday, bonds edged up around half a percent, while the S&P Merval stock index was up nearly 2%.

"Milei's list wasn't expected to come first, and that has two implications," said Graham Stock, emerging markets strategist at RBC Global Asset Management, adding it gave Milei leverage with his more moderate conservative allies.

"It suggests that they're going to do better than expected in the midterms in October, but even before that, it creates more momentum behind a deal (with center-right party PRO)."

Argentina will renew half of the seats in the lower Chamber of Deputies and a third of those in the Senate in the midterm vote. Milei, an economist and acid-tongued former pundit, came to office in December 2023 after a shock election win.

The country still faces a major challenge to build up depleted foreign currency reserves, which it needs to hit targets under a new $20 billion IMF deal, while the recent lifting of capital controls has made the peso more volatile.

And not everyone was convinced that it was a win for Milei, with voters split - and many not turning up at all.

"My interpretation is that no political party won," said Buenos Aires lawyer Juan Pablo Mares, citing one of the lowest-ever voter turnouts with many people apathetic and struggling under still-high inflation and cuts to public services.

"If the political leaders don't look at that, read it, and learn from it, they will continue to be divorced from the reality we all face."

(Reporting by Walter Bianchi and Juan Bustamante; Additional reporting by Rodrigo Campos; Writing by Adam Jourdan; Editing by Andrea Ricci)