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EMERGING MARKETS-Chile's peso plummets to one-month low on constitution vote shock

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* Chile's peso set for worst day since January * Peru's sol drops as presidential candidate hints at higher taxes (Updates prices) By Ambar Warrick and Shashank Nayar May 17 (Reuters) - Chilean risk assets tumbled on Monday after a shock result in the vote over the drafting of a new constitution, while higher oil prices and a positive U.S. economic outlook helped support the Brazilian real and Mexican peso. The Chilean peso fell 2.2% and was set for its worst day since January this year, after the country's ruling center-right coalition failed to secure a critical one-third of seats in the body that will draft a new constitution, increasing the chances of the passing of more radical proposals. The copper-producing country's bonds, currency and stocks all sank as jitters spread amongst investors, fearful that Chile's market-friendly constitution, dating from the dictatorship of Augusto Pinochet, could face a major overhaul. "The election results attest to deep distrust of the political establishment and rejection of the traditional political structures. This could translate into a very noisy constitution drafting process," Goldman Sachs analysts wrote in a note. "We expect the new Constitution to validate a larger, more interventionist state... This would add further pressure on the already deteriorating fiscal/debt dynamics, and a potential shift away from hitherto investment-friendly policies and institutions could weigh on medium-term macroeconomic performance." The Peruvian sol fell 1.1% after its socialist presidential candidate Pedro Castillo said on Sunday night he would raise taxes and royalties on Peru's key mining sector and renegotiate the tax contracts of large companies if elected to high office next month. Commodity-focussed currencies like the Mexican peso gained 0.4%, tracking higher oil prices, while Colombian markets were closed for a hioliday. Meanwhile, a resurgence in COVID-19 cases and restrictions in major Asian economies and disappointing Chinese data saw investors pivot out of risk-heavy assets. The risk-off sentiment added to pressure on Latam assets, given that the region has already been struggling with a damaging wave of COVID-19 infections this year. Disappointing retail sales and factory output data from China also hurt regional sentiment, given that the country is a major export destination for metals and agricultural goods from Latam. Brazil's real, gained for the second consecutive session on higher prices of iron ore, the country's top export, while recent interest rate hikes by Brazil's central bank saw speculators going long on the currency in two years. Investors also dialed up their expectations for economic growth, data showed. Key Latin American stock indexes and currencies: Latest Daily % change MSCI 1310.43 0.22 Emerging Markets MSCI LatAm 2506.26 0.19 <.MILA00000 PUS> Brazil 122962 0.89 Bovespa Mexico IPC 49395.4 0.36 Chile IPSA 4193.89 -8.32 Argentina 56097.2 2.27 MerVal Colombia 1289.75 2.18 COLCAP Latest Daily % change Brazil real 5.2554 0.31 Mexico peso 19.774 0.42 Chile peso 715.5 -2.23 Colombia 3682.88 NOT peso AVAILABL E Peru sol 3.713 -0.99 Argentina 94.13 -0.09 peso (interbank) (Reporting by Ambar Warrick and Shashank Nayar in Bengaluru Editing by Marguerita Choy and Alistair Bell)

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