BUENOS AIRES, June 19 (Reuters) - Argentina's peso continued firming on Thursday, trading at its strongest level since May 2006 in interbank trade as the central bank made hefty dollar sales amid a political standoff with farmers.
In midday trade, the peso ARS=RASL appreciated 0.25 percent to 3.0250/3.0275 per dollar.
In informal trade between foreign exchange houses, as measured by Reuters, the peso strengthened by the same percentage to 3.1100/3.1125 per dollar ARSB=.
Traders said the central bank continued tapping its foreign reserves to shore up the peso and avoid a run on the currency, as a three-month tax dispute between the government and farmers kept the country alert to possible food and fuel shortages.
Farm leaders extended their latest partial strike through Friday, vowing to withhold grains from market but allow other farm products to be sold.
With grain sales disrupted, many exporters are no longer cashing in their dollars for pesos on the foreign exchange market. Traders said the central bank has effectively acted to replace them, as private investors continue betting on safe-haven greenbacks.
"Our action (in recent weeks) was forceful, the demand for pesos strengthened significantly, putting a stop to a tendency toward depreciation and avoiding possible undesired effects on prices," Central Bank President Martin Redrado told a conference organized by LatinFinance magazine on Wednesday.
"Not using our foreign reserves at a time of demand for dollars would have been absurd," Redrado said.
Since mid-May, the central bank's foreign reserves have fallen more than $2 billion to about $47.7 billion BCRA32. Reserves hit a record high of $50.5 billion in late March.
Meanwhile, the MerVal index .MERV traded up 0.64 percent at 2,061.38 points, boosted by gains in index heavyweight Tenaris, a top world supplier of seamless steel tubes for the energy industry.
Tenaris' shares TENA.BA jumped 8.5 percent to 108 pesos a share in Buenos Aires ahead of options expiries and amid speculative buying, traders said.
But government debt traded on the local market resumed its slump, falling 0.8 percent on average in midday trade. (Reporting by Jorge Otaola and Hilary Burke; Editing by Jonathan Oatis)