Argentine stocks, peso weaken on debt fund crisis
* Dispute over gov't debt repayment fund weighs
* Local banks hit as they major Argentine bond holders
* Sell off limited on high expectations behind '09 rally (Updates to close)
By Jorge Otaola
BUENOS AIRES, Jan 8 (Reuters) - Argentina's financial markets closed down on Friday as investors reacted to a deepening dispute over the president's plan to use Central Bank foreign reserves to guarantee debt payments this year.
The benchmark MerVal stocks index .MERV closed down 1.53 percent to 2,352.76 points, pressured by banking sector losses as locally traded sovereign debt fell. Local banks are major holders of Argentine bonds and their stock tends to fall when debt prices are hit.
The country's biggest financial conglomerate Grupo Financiero Galicia GFG.BA was among the biggest losers on the stock market, falling 2.28 percent to 2.14 pesos per share.
Bond prices slipped by 1.2 percent on average in over the counter trade in Buenos Aires, as political tensions rose over the government plan to tap $6.6 billion in foreign reserves. The Boden 12 bond denominated in dollars ARBODEN12D=RASL dropped 2.5 percent.
An Argentine judge blocked the president's plan on Friday and ordered the bank chief's reinstatement, a day after President Cristina Fernandez fired him for refusing to hand over the reserves. For details see [ID:nN08233593] Continuación...