(Repeats to correct typo in 10th paragraph)
(Updates with closing prices, adds foreign exchange market)
BUENOS AIRES, Nov 3 (Reuters) - Argentine bonds rallied on Monday on buying by bargain-hunters after October's sharp losses, helping to drive stocks higher as banking shares soared.
The local debt market got an added boost after two Argentine newspapers said the government was considering a plan to buy back locally traded bonds as a way to take advantage of low prices.
An Economy Ministry spokesman refused to comment on the reports in El Cronista and Ambito Financiero newspapers, which cited unnamed government sources.
Bonds traded on the local market closed up 6.6 percent on average, with dollar-denominated Disc paper ARDISCP=RASL rising 11.5 percent.
Local Argentine debt prices fell by about 60 percent on average last month because of the global financial crisis and a government plan to take over private pension funds, but bargain-hunting has seen them rise in recent sessions.
Argentine global bond yield spreads over U.S. Treasuries narrowed 213 basis points to 1,574 basis points in afternoon trade on Monday, according to JP Morgan's benchmark Emerging Markets Bond Index Plus (EMB+) 11EMJ.
The recovery of sovereign debt prices also boosted the benchmark MerVal .MERV stocks index. Argentine banks are among the biggest holders of government bonds and they led Monday's rally.
The index ended the day up 4.63 percent at 1,057.62 points, its fifth straight gain.
The session's biggest gainers included Banco Macro BMA.BA and banking group Grupo Financiero Galicia GFG.BA, which rose 14.7 percent and 11.8 percent respectively.
Trade volume was low on the foreign exchange market due to new central bank measures aimed at curbing short-term financial operations that cause abrupt movements in financial markets.
Under the new measures, banks must hold onto bonds and stocks for at least three days.
"The foreign exchange market operated with very few dollars due to the restriction placed on banks," said Fernando Izzo, an analyst at the ABC Mercado de Cambios exchange house.
The peso firmed just 0.07 percent to close at 3.3850/3.3875 per dollar in formal trade between banks ARS=RASL.
In informal trade between foreign exchange houses, as measured by Reuters, the peso climbed 1.46 percent to 3.42/3.43 per dollar ARSB=.
The peso has been trading at levels not seen since a currency devaluation in 2002 when the country was in an economic and political crisis. (Reporting by Jorge Otaola and Walter Bianchi; Writing by Helen Popper; Editing by Diane Craft)