September 2, 2008 / 9:01 PM / 12 years ago

Argentine markets cautious over Paris Club move

(Updates with closing prices)

BUENOS AIRES, Sept 2 (Reuters) - Argentine stocks closed down on Tuesday as energy-related shares fell on lower oil prices, erasing earlier gains linked to the government’s announcement that it would pay off $6.7 billion in defaulted Paris Club debt, while bonds edged higher.

The benchmark MerVal .MERV share index closed down 1.17 percent at 1,757.94 points after rising by as much as 0.85 percent after the debt announcement.

“It was a volatile day in which the news about the Paris Club caused a quick, strong surge that wore off due to the international climate,” said Leopoldo Olivari, a trader at the Bacque brokerage.

Among the biggest losers was Tenaris TENA.BA, the world’s top producer of seamless steel tubes for the energy industry, which fell 6.35 percent to 77.4 pesos per share. Tenaris is the MerVal’s top-weighted stock.

Trade volume on the broad market was a light $27 million, and of active shares, 35 declined, 29 advanced and 18 were unchanged.

In the local debt market, Argentine bonds <AR/BONOS> trimmed earlier gains, closing with an average increase of 0.6 percent. They had risen by as much as 0.8 percent after the debt announcement by President Cristina Fernandez.

Traders said the announcement provoked mixed feelings.

“It’s positive in that it shows a willingness to pay, to get rid of a problem, and because of the possibility that it could open up financing at better interest rates for Argentine companies,” said Christian Reos, an analyst at Allaria Ledesma brokerage in Buenos Aires.

In a sign of the skepticism, yield spreads over U.S. Treasuries, considered a key measure of risk aversion, widened by 13 basis points at 20:45 GMT to 684 basis points on the benchmark JPMorgan EMBI+ index 11EMJ .JPEMBIPLUS.

Argentina has been in default to the Paris Club of creditor nations since a 2001-02 economic crisis, and Fernandez said the government would use foreign currency reserves to clear the debt.

The peso closed down, shedding 0.33 percent against the dollar to 3.0375/3.04 ARS=RASL in interbank transactions and weakening by 0.16 percent 3.06/3.0625 ARSB= in informal trade between foreign exchange houses, as measured by Reuters.

Traders said the government announcement sparked dollar-demand because the payment would be made from the foreign reserves. (Reporting by Jorge Otaola and Walter Bianchi; Writing by Helen Popper; Editing by Leslie Adler)

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