UPDATE 1-Argentina markets plunge on pension fund takeover bill

miércoles 22 de octubre de 2008 18:58 ARST

(Adds closing prices, CDS values)

By Manuela Badawy

NEW YORK Oct 22 (Reuters) - Investors dumped Argentina's assets on Wednesday as a plan to nationalize the country's private pension system erased the little confidence left on the government's macroeconomic policies.

Argentina's stock market plummeted to close 10 percent lower and government debt spreads, or the premium that investors demand for holding riskier securities than U.S. Treasuries, widened more than 1,900 basis points as investors sold-off government bonds.

President Cristina Fernandez signed a bill on Tuesday to transfer private pension fund savings to state control. Congress, which has a majority of Fernandez allies, will debate the bill next week.

The country's assets plunge was further fueled by deepening fears of a global recession that could likely be long and severe.

Argentina's benchmark MerVal .MERV index dipped below the 1,000 for the first time since September 2004 and reached 877.86 points, its lowest since June 2004. The index closed down 10.11 percent at 940.82 points.

The country's spreads widened all the way to 2006 basis points over U.S. Treasuries, to quasi-default levels, according to JP Morgan's Emerging Markets Bond Index Plus (EMBI+) 11EMJ .JPMEMBIPLUS. It ended the day at 1,962 basis points, losing 17.36 percent of returns on the day.

Five-year Argentina credit default swaps -- insurance-like contracts that offer protection against debt default or restructuring -- were priced with a 50 percent upfront cost.   Continuación...