* Brazil"s real headed for worst day in over 1 month * Chile"s inflation rise strengthens rate hike bets * Lawmakers pass Colombia"s tax reform bill (Adds details, updates prices) By Susan Mathew and Ambar Warrick Sept 8 (Reuters) - Brazil"s real currency slumped more than 2% on Wednesday, while local stocks hit a more-than-five-month low on heightening political tensions ahead of elections next year. Brazilian President Jair Bolsonaro slammed the country"s Supreme Court and cast doubt on the integrity of next year"s elections on Tuesday as his supporters rallied in major cities. Bolsonaro"s popularity has dropped sharply over his handling of the coronavirus outbreak in the South American country and allegations of corruption. Analysts worry about the impact to already stretched fiscal spending as the right-wing president tries to regain popularity. "It"s important to monitor potential repercussions/offside effects from these events, especially those that can affect the economic outlook in the near term," Citi strategists said. "It is also important to monitor whether the higher tension between President Bolsonaro and the judicial system will affect the willingness of the latter in contributing to find a solution for the judicial debt payments," which can help minimize the potential damage in the government"s spending cap amendment. The real looked to post its worst session since late July, as did stocks, with the Bovespa equity index slumping nearly 3%. But shares of rental car providers Localiza and Unidas jumped nearly 7% each after Brazilian antitrust regulator Cade signaled it would approve their merger, albeit with mild measures to avoid concentration. Mexican assets showed little reaction to the government"s 2022 budget, which is set to focus on financial stability and support for regional development. The budget also reiterated that no new taxes would be created. Mexico"s peso traded flat, while stocks fell 0.9%. Broadly, worries about a slower global economic recovery from the fallout of the coronavirus pandemic weighed on risk sentiment, keeping most Latin American assets subdued. Chile"s peso slumped 0.8% as the price of copper, its main export, fell. The currency has lost almost 3% so far this week, wiping out its strong gains last week. Chile"s consumer prices rose 0.4% in August, data showed, while its rolling 12-month inflation hit 4.8%, above the central bank"s target range of 2%-4%. "The further rise in Chile"s inflation ... in August suggests that the central bank"s tightening cycle has a lot further to run," said Nikhil Sanghani, EM economist at Capital Economics. Colombia"s currency fell 0.4% as Colombian lawmakers passed a revised tax bill, which is set to raise $4 billion annually. But analysts doubted the long-term benefits of the bill. Key Latin American stock indexes and currencies: Latest Daily % change MSCI Emerging Markets 1313.96 -0.88 MSCI LatAm 2371.93 -3.92 Brazil Bovespa 114465.34 -2.89 Mexico IPC 51481.07 -0.9 Chile IPSA 4350.77 -1.85 Argentina MerVal 77335.49 -2.113 Colombia COLCAP 1318.43 -0.19 Currencies Latest Daily % change Brazil real 5.3030 -2.40 Mexico peso 19.9291 -0.04 Chile peso 786.5 -0.79 Colombia peso 3814.08 -0.43 Peru sol 4.0867 -0.15 Argentina peso 98.0000 -0.01 (interbank) (Reporting by Susan Mathew in Bengaluru Editing by Paul Simao and Jonathan Oatis) Our Standards: The Thomson Reuters Trust Principles.