BUENOS AIRES, April 1 (Reuters) - The Argentine peso firmed slightly in midday trade on Tuesday as the central bank pumped dollars into the market, while bonds turned higher after a string of losses linked to investor caution over a 20-day farm strike.
The peso was trading up 0.08 percent against the dollar at 3.1650/3.1675 ARS=RASL in formal interbank trade, where the central bank is selling dollars to put the brakes on the peso's fall, traders said.
Meanwhile, the benchmark MerVal stock index .MERV traded up more than 1 percent in midday trade, driven by gains in banking stocks.
The farmers' strike against a tax hike on soy exports has disrupted key grains exports, cutting off the flow of dollars from agricultural exporters.
The protest has also caused food shortages and landed President Cristina Fernandez her biggest political conflict since taking office in December.
In informal trade between foreign exchange houses as measured by Reuters, the peso ARSB= strengthened by 0.16 percent to 3.1800/3.1825 per dollar.
On the debt market, government bonds <AR/BONOS> were trading up 0.7 percent on average. The dollar-denominated Discount bond was up 1.8 percent in over-the-counter trade.
Traders said the market's modest recovery was due to selective bargain-hunting.
Argentine bonds' risk spread over U.S. Treasuries, as measured by investment bank JP Morgan, fell by 26 basic points to 555 basic points, the EMBI+ showed in early trade. (Reporting by Walter Bianchi and Jorge Otaola; Writing by Gaspard Sebag; editing by Gary Crosse)