(Adds peso close, updates prices)
BUENOS AIRES, Oct 28 (Reuters) - Argentine bond prices retreated for a 10th consecutive session and the currency dipped to its weakest since the 2002 economic crisis on Tuesday despite government pressures on private pension fund managers to hold onto sovereign debt and pesos.
Sovereign bonds traded on the local over-the-counter market dropped an average 1.5 percent in afternoon trade, accumulating a 39 percent drop over the last 10 sessions and shedding 59 percent in the month of October.
The peso slipped 2.12 percent to 3.3750/3.3700 ARS=RASL per U.S. dollar in the formal interbank market, the weakest since an economic crisis and devaluation in 2002.
Most bonds traded locally are at historic lows, with investors pricing in default fears. The dollar-denominated Par bond was among Tuesday's most liquid ARPARD=RASL, dropping 3.54 percent to an ask price of 17.70.
Traders said investors continued to dump the bonds in a crisis of confidence after the government said last week it would take over the private pension fund system, possibly drying up liquidity in local markets.
"As long as the conflict over the pension funds continues, bonds will continue weak," said Augusto Farina, trader with Amirante Galitis brokerage.
The head of the state social security agency, which will take over management of the pensions if the takeover is approved by Congress, met on Monday with pension fund administrators and asked them to preserve market liquidity by holding onto sovereign bonds and renewing short-term deposits in local banks when they mature.
The pension fund move by the government has also been read as a desperate measure to stave off default next year, when the government faces rising debt obligations in a context of frozen credit markets.
The benchmark MerVal stock index .MERV was off 0.97 percent at 831.60 in afternoon trade. (Reporting by Jorge Otaola; Writing by Fiona Ortiz; Editing by James Dalgleish)