EMERGING MARKETS-Brazilian real falls on political worries; Mexico's peso up over 1%

    * Lula would be strongest presidential rival to Bolsonaro-
analyst
    * Mexico inflation quickens in February to highest since
October
    * Dollar weakness supports most Latam currencies

 (Adds comment, updates prices throughout)
    By Shreyashi Sanyal
    March 9 (Reuters) - Brazil's real fell on Tuesday, extending
its plunge after the annulment of criminal convictions against a
former president, while most other Latin American currencies
firmed against a weaker dollar with Mexico's peso jumping more
than 1%. 
    The real dipped 0.3% to 5.79 per greenback after
slumping more than 3% last session as the annulment of cases
against former leftist President Luiz Inacio Lula da Silva put
him on track to run in the 2022 presidential election, stirring
investor worries about President Jair Bolsonaro's response. 
    "He (Lula) would be the strongest presidential rival to Mr.
Bolsonaro," said William Jackson, chief emerging markets
economist at Capital Economics. 
    "The annulment of the left-wing former president's criminal
convictions has significantly increased the likelihood of a
looser fiscal stance, which could put Brazil's public debt back
onto an unsustainable path."
    Bolsonaro's recent actions to replace state-oil firm
Petrobras's chief executive, and threats to interfere
in other sectors of the economy, have made investors wary about
Brazilian assets. Adding in the pressure on emerging market
assets from rising U.S. yields, the real is one of the worst
performing EM currencies so far this year - down about 11%.
    "The Lula story is certainly a bucket of cold water for
those attempting to be bullish with Brazil," Citi Research
strategists said, as it gives fresh legs to the multi-year trend
of polarization in Brazilian politics. 
    "After the initial impact of the (annulment) is absorbed,
the reform agenda will remain relevant...and will still be
important drivers of price action this year. We believe there is
room for further underperformance in Brazil asset prices."
    With U.S. Treasury yields stabilizing and Wall Street's
stock indexes opening higher, Sao Paulo's Bovespa stock index
 rose 0.9%, after sinking 4% on Monday.
    The broader MSCI index of EM stocks entered
correction territory, after falling more than 10% from this
year's high hit in February. 
    Mexico's peso jumped 1.4% against a weaker dollar
after data showed annual inflation in the country accelerated to
its highest rate in four months in February due to a rise in
energy costs, but stayed within the central bank's target range.
 
    The dollar's weakness saw Chile's peso, closely
aligned with copper prices, rise 0.2% despite a slip in prices
of the red metal.    
    The currency rose for the first time in four sessions. 
    Key Latin American stock indexes and currencies at 1854 GMT:
    
          Stock indexes                   Latest    Daily %
                                                     change
 MSCI Emerging Markets                     1319.33      0.86
 MSCI LatAm                                2195.30      0.11
 Brazil Bovespa                          111672.65      0.96
 Mexico IPC                               47106.68      0.07
 Chile IPSA                                4838.00      2.65
 Argentina MerVal                         46215.26    -0.165
 Colombia COLCAP                           1335.73     -0.09
                                                            
             Currencies                   Latest    Daily %
                                                     change
 Brazil real                                5.7979     -0.34
 Mexico peso                               21.2184      1.37
 Chile peso                                  735.1      0.11
 Colombia peso                             3590.75      0.34
 Peru sol                                   3.6978      0.11
 Argentina peso (interbank)                90.6400     -0.07
                                                    
 Argentina peso (parallel)                     141      2.13
                                                    
 
     

 (Reporting by Susan Mathew in Bengaluru and  Luana Maria
Benedito in Brasilia; Editing by Nick Zieminski and Mark
Heinrich)