* 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)