Brazil's real fell 2% to its lowest in over two weeks on Tuesday, leading declines among Latin American currencies on worries about its fiscal health, while Chile's peso dropped on lower copper prices ahead of an expected interest rate hike.

The real fell as far as 4.93 per dollar by 1425 GMT, eying its biggest one-day percentage fall in more than one month after Brazil's government proposed a constitutional amendment to compensate states for an eventual loss in revenue caused by a tax cut aimed at curbing soaring diesel and gas prices. This would temporarily reduce the state tax on the circulation of goods and services (ICMS) to zero, but the proposal is yet to be approved by Congress.

The measure might aid in reducing inflationary pressures in the near term, Citi strategists said, but "it increases the fiscal risks, especially considering the possibility of easing the spending cap anchor again."

Brazil's spending cap was approved by Congress in 2016, amending the constitution to limit the growth of the federal budget to the pace of inflation. The rule is considered the principal anchor of fiscal policy.

President Jair Bolsonaro has created exceptions to make room for more public expenditures this year and is looking to change spending rules after October's election. Leftist frontrunner Luiz Inacio Lula da Silva has called repeatedly to scrap the spending cap.

Chile's peso fell 0.5% as prices of its top export, copper, dropped on concerns of lower demand from China. Data showed Chilean exports of the red metal reach $3.76 billion in May, down 18.3% from a year earlier. The country's central bank is expected to hike its benchmark interest rate to 9% later in the day to tame rising inflation.

"We think the central bank will likely increase the reference rate by 100bps, to 9.25%, in today's monetary policy decision," wrote Credit Suisse analysts Alonso Cervera and Alberto Rojas, highlighting rising inflation in Chile and across the world.

Most emerging market stocks and currencies trailed lower on Tuesday as a larger-than-expected interest rate hike by the Reserve Bank of Australia sparked worries of tighter monetary policy, lifting safer bets like the U.S. dollar and Treasuries, while taking the shine off riskier assets.

Mexico's peso, Peru's sol and the Colombian peso fell about 0.3% each against the dollar. The MSCI's index for Latin American stocks fell 2%.

(Reporting by Shreyashi Sanyal in Bengaluru, Editing by Mark Potter)