* Mexican economy expands 5% in September * Brazil central bank sells 10,000 forex swap contracts * Argentine govt freezes goods prices to curb inflation * Colombia approves $93 billion spending package By Shashank Nayar Oct 20 (Reuters) - Brazil"s real slumped 0.8% on Wednesday amid political and fiscal worries, while Mexico"s peso hit three-week highs after data showed its economy continued to recover from a pandemic slump. After sliding almost 2% on Tuesday, Brazil"s real extended declines despite attempts by the central bank to support the currency hovering at six-month lows. The bank sold all 10,000 forex swap contracts offered at an auction on Wednesday. Overnight, the senator leading a congressional probe into Brazil"s handling of the COVID-19 pandemic recommended that President Jair Bolsonaro be charged with homicide for alleged government errors that led to the deaths of thousands. But local reports on Wednesday suggested senators had dropped the recommendation. Ahead of elections next year, worries about the government breaching its spending cap also eased slightly after it canceled an announcement for a generous new welfare program. "Any breach of the spending cap in 2022 is not comprised in our scenario and would immediately impose a deterioration of our fiscal forecasts, with accordingly secondary impacts on other variables," said strategists at Citi. Mexico"s peso gained 0.2% as its economy expanded by 5.0% in September compared with the same month last year, a preliminary estimate from national statistics agency INEGI showed. The heavily controlled Argentine peso was flat against the dollar. The government froze prices of over a thousand household goods until early 2022 in a bid to tamp down inflation. "In our view, this policy is unlikely to curb inflation, and if it has any effect, it will be in the very short term at the cost of increasing medium-term risks when prices unfreeze," Citi said. "We believe that the announcement (is) evidence they have ran out of tools to fight inflation, and hence may be counterproductive and increase inflation expectations." The South American nation is battling to cool inflation that is running at an annual rate of over 50%, sapping savings and dragging on economic growth. Crude exporter Colombia"s peso tracked oil prices lower. Colombia"s Congress approved the 350.4 trillion peso ($93 billion) spending package for its 2022 budget, the second consecutive year it has approved a record sum. The currency of the world"s largest copper producer, Chile was subdued as metal prices eased. Key Latin American stock indexes and currencies at xx GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1301.57 0.54 MSCI LatAm 2234.89 0.31 Brazil Bovespa 110891.17 0.2 Mexico IPC 52366.24 -0.07 Chile IPSA 4024.28 0.74 Argentina MerVal 84984.97 0.803 Colombia COLCAP 1418.40 0.13 Currencies Latest Daily % change Brazil real 5.5526 0.75 Mexico peso 20.1803 0.23 Chile peso 809.8 0.07 Colombia peso 3767.63 -0.09 Peru sol 3.93 0.14 Argentina peso 99.3300 -0.02 (interbank) (Reporting by Shashank Nayar in Bengaluru Editing by Mark Potter)