BUENOS AIRES, Aug 1 (Reuters) - Argentine stocks slumped to a two-week low on Friday, hit by Wall Street declines and by a change in taxes on financial transactions that was initially interpreted as applying to mutual funds.
The benchmark MerVal index .MERV dropped 1.86 percent to 1,884.06 points in weak volume of $21 million. Of active issues 67 declined, 32 gained and 13 closed unchanged.
Heavily weighted power firm Pampa Holding (PAM.BA) was the session's value leader, sliding 5.9 percent to 1.6 pesos per share as investors decided an electricity rate hike earlier this week would not greatly benefit its distribution and transmission units.
"What stood out was the landslide in power issues, probably because investors now understand the rate hike doesn't mean that much for them," said Ricardo Maied, trader with Federal Bursatil brokerage.
A wider sell-off began in the morning because of a notice in the Official Gazette that said the government was eliminating a tax break for financial transactions.
At first it seemed that meant taxes on transactions involving mutual funds and trusts.
But later in the day, legal experts said the tax would impact investment funds dedicated to farming, such as sowing pools that rent fields and hire others to farm soybeans.
Argentine sovereign debt fell 0.5 percent on average in local trade, led by the dollar-denominated Discount bond, which fell 2.2 percent.
"It's difficult to buy are hold on to a bond in a country where risk is growing," said a trader. Argentine assets were battered by a prolonged conflict between the government and the powerful agricultural sector.
The peso currency rose against the dollar as the Central Bank sold greenbacks to respond to demand from private investors, which was partly due to the tax rules disarray.
In formal interbank trade, where the Central Bank intervenes, the peso rose 0.08 percent to 3.0400/3.0425 per dollar ARS=RASL. In informal trade between foreign exchange houses the peso rose 0.25 percent to 3.0575/3.0600 per dollar ARSB=. (Reporting by Jorge Otaola, writing by Fiona Ortiz)