* Local bonds trim earlier gains to end up average 0.1 pct
* Stocks fall 1.48 percent in light trade, banks slide (Updates to close)
By Jorge Otaola
BUENOS AIRES, Jan 11 (Reuters) - Argentine stocks fell on Monday while bonds ended almost flat in light trade marked by persistent investor caution due to a row over government plans to tap foreign currency reserves to pay debt.
The benchmark MerVal stocks index .MERV closed down 1.48 percent at 2,317.74 points, dragged down by banking shares. Grupo Financiera Galicia GFG.BA fell 4.2 percent to 2.05 pesos per share.
“It’s clear that investors may not take decisions until the situation is resolve.d ... In this scenario (traders) prefer to make choices that don’t carry high risk in Argentina, like oil companies,” said Francisco Marra, a trader at the Bull Market Traders brokerage.
President Cristina Fernandez fired the central bank chief, Martin Redrado, by decree last week after he refused to free billions of dollars in foreign reserves to pay the public debt -- a move the opposition says is unconstitutional.
A court reinstated Redrado and barred the government from tapping the reserves. A special Congress committee could meet later this week to discuss whether Fernandez overstepped her authority firing Redrado by decree. For details see [ID:nN11152117]
Despite the uncertainty, bond prices closed up by an average 0.1 percent in over-the-counter afternoon trade in Buenos Aires, trimming earlier gains of as much as 0.6 percent fueled by bargain-hunting after last week’s losses.
Among the gainers was peso-denominated Discount paper ARDISCP=RASL, which rose 1.3 percent.
The risk spread on Argentine bonds narrowed by 2 basis points to 683 basis points over comparable U.S. treasuries, according to the benchmark J.P. Morgan Emerging Market Bond Index 11EMJ.
In formal interbank trade ARS=RASL, the peso currency rose 0.13 percent against the dollar to end at 3.7925/3.795 in trade monitored closely by the Central Bank to avoid bigger fluctuations, traders said. (Writing by Eduardo Garcia and Helen Popper; Editing by Leslie Adler)