Argentina seeks U.S. court stay to avoid new debt crisis

By Hugh Bronstein BUENOS AIRES (Reuters) - Argentina has asked a U.S. judge to issue a stay of his ruling against the country in its case against "holdout" creditors as it seeks to start negotiations aimed at avoiding a new default, according to court papers filed on Monday. Argentina is in a 12-year-old legal fight with investors who declined to participate in debt restructurings after the country failed to pay about $100 billion of debt in 2002. A new default would put added strain on Latin America's No. 3 economy as it grapples with high inflation and already low investor sentiment. Without a stay on a ruling against the country by U.S. District Judge Thomas Griesa, Argentina would be legally barred from making a June 30 coupon payment on its restructured bonds unless it also pays $1.33 billion to holdouts seeking full payment of the debt they hold. "We consider it essential that Judge Griesa issue a stay so that the republic of Argentina can continue paying the holders of restructured bonds," Economy Minister Axel Kicillof told reporters in Buenos Aires. Lawyers for the ministry filed a letter in Griesa's court in Manhattan formally asking for the stay, saying it was needed in order to "allow the Republic to engage in a dialogue with the plaintiffs in a reasonable time frame for these kinds of negotiations." If the government does not make the June 30 payment on time, it would have a 30-day grace period before falling into technical default. On Friday, Argentine President Cristina Fernandez reversed her long-held policy of shunning negotiations with the holdouts, sparking a rally in local markets. Fernandez had refused to negotiate with them, portraying them as "vultures" picking over the bones of the 2002 debt crisis, which thrust millions of middle-class Argentines into poverty. More than 90 percent of bondholders accepted the restructurings, which left them with less than one-third of the original value of their bonds. Griesa has appointed Daniel Pollack, a prominent New York financial trial lawyer, as special master to assist in possible talks between Argentina and the holdouts. Pollack declined to comment to Reuters, and a court official in New York said no hearing was scheduled for Monday. Over-the-counter local bonds were up 5.8 percent on Monday afternoon while the Merval stock index rose 7.7 percent and the peso strengthened 5.1 percent to 11.85 per U.S. dollar in black market trade . The official exchange rate was nearly unchanged at 8.1325 to the greenback. Restructured Argentine bonds, already higher on speculation that a deal between the government and holdouts will be reached, added to gains after a flurry of headlines from Buenos Aires and New York. The 2033 Discount Bonds traded up 9.91 points in price to bid 88.139, driving the yield down to 9.83 percent, according to Thomson Reuters data. The Argentine Par bonds maturing in 2038 rose 1.82 points in price to bid 48.149, pushing the yield down to 9.11 percent. Argentina's international bonds have not traded at better levels since August 2011. (Additional reporting by Alexandra Ulmer and Walter Bianchi in Buenos Aires and Daniel Bases in New York)