BUENOS AIRES, May 7 (Reuters) - Argentina's financial markets closed lower on Wednesday due to expectations that farmers would resume protests against a tax rise on soy exports, traders said.
Talks between farmers and government officials broke down on Wednesday and leaders of the country's key agricultural sector announced the resumption of protests soon after markets closed. They staged a three-week strike in March.
Grains exporters are the main source of U.S. dollars in Argentina's foreign exchange market and concerns that farmers could halt sales fueled dollar purchases.
"The market is dollar-hungry due to the farm issue," said one currency trader. "There's also a lack of dollar liquidity because farmers are only selling the bare minimum."
In formal interbank trade, the peso fell 0.24 percent to 3.1825/3.185 per dollar ARS=RASL. In informal trade between foreign exchange houses, as measured by Reuters, it weakened by 0.39 percent to 3.2425/3.245 per dollar <ARSB=.
As the farm talks deadlocked last week, farmers vowed to limit their sales and purchases of supplies and start roadside protests across the country, one of the world's top exporters of grains, oilseeds and beef.
The heightened tensions over the agricultural dispute also dampened locally traded bonds <AR/BONOS>, which deepened their losses in recent days with an average loss of 1.5 percent.
Dollar-denominated Par debt was the hardest hit on Wednesday, plunging 3 percent in over-the-counter trade.
Traders said state-run banks had been buying bonds in recent days to avoid even bigger losses.
Meanwhile, the MerVal index .MERV of leading stocks was also affected by jitters over the farming conflict, sliding 1.55 percent to 2,093.99 points.
Volume on the broad market shrank to a meager $27.8 million and of active issues, 74 declined, 33 advanced and 11 were unchanged.
Banking papers were hardest hit due to the losses clocked by Argentina bonds. Local banks are among the biggest holders of Argentine debt.
Banco Patagonia (BPAT.BA) lost 3.29 percent to 2.35 pesos per share and Grupo Financiero Galicia GFG.BA saw its stock sink 3.01 percent to 1.93 pesos per share. (Reporting by Walter Bianchi; Writing by Helen Popper)