* Chile's peso set for worst day in 3 months * Brazil's real down as COVID deaths cross new milestone By Ambar Warrick May 17 (Reuters) - Chilean stocks and the peso tumbled on Monday after a shock result to the vote over the drafting of a new constitution, while most other Latin American currencies dropped as new COVID restrictions in Asia dented risk appetite. The peso fell as much as 3.6% and was set for its worst day since February, 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. Chilean stocks plunged more than 9% to their lowest since late-Dec, while the country's sovereign dollar-denominated bonds were largely stable. The vote was the result of fierce nationwide protests against inequality in 2019, with the current constitution being widely perceived to favor big businesses over the rights of ordinary citizens. "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." Other Latam currencies fell, as new COVID-19 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 dropped 0.6% as deaths in the country topped 435,000, the worst in the region. But a rash of 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. Colombian markets were closed for a holiday. Key Latin American stock indexes and currencies: Latest Daily % change MSCI Emerging Markets 1308.07 0.04 MSCI LatAm 2468.61 -1.32 Brazil Bovespa 121995.61 0.09 Mexico IPC 49242.03 0.05 Chile IPSA 4137.35 -9.56 Argentina MerVal - - Currencies Latest Daily % change Brazil real 5.3022 -0.60 Mexico peso 19.8746 -0.09 Chile peso 714.4 -2.03 Peru sol 3.677 -0.01 Argentina peso 94.1300 -0.08 (interbank) (Reporting by Ambar Warrick in Bengaluru Editing by Marguerita Choy)