(Updates with close, adds peso, bonds)
BUENOS AIRES, Aug 11 (Reuters) - Argentine stocks slumped to their lowest level in 22 months on Monday, taking a hit from falling oil prices and a decision by credit rating agency Standard & Poor's to cut the country's sovereign debt ratings, traders said.
Locally-traded bonds had closed when the S&P announced the downgrade, but in informal after-hours deals they trimmed earlier gains fueled by a government decision to buy back bonds. The Argentine peso also firmed.
The benchmark MerVal index .MERV ended down at 1,708.95 points, its weakest showing since October 2006.
Index heavyweight Tenaris (TENA.BA) (TS.N) (TENR.MI), the world's top producer of seamless steel tubes for the energy industry, saw its stock shed 8.2 percent, while Brazil's state-run energy firm Petrobras (APBR.BA) (PETR4.SA), plunged 4.1 percent.
The MerVal's losses deepened after S&P cut its foreign currency long-term sovereign credit rating for Argentina by one notch to "B" from "B+", citing increased economic challenges such as inflation.
"The S&P (decision) was the blow the market needed to deepen the price losses," said Hernan Labrone, an analyst at the Fenix Financial Company brokerage.
On the broad market, trade volume was a modest $31.5 million. Of active shares, 60 retreated, 35 advanced and 13 were unchanged.
Meanwhile, Argentine sovereign debt prices rallied about 4.0 percent on average in over-the-counter trade after the government announced plans to buy back bonds, with dollar-denominated Discount paper surging 6.0 percent.
Argentina's debt spreads narrowed 60 basis points to 669 basis points over U.S. Treasuries in late Monday trade, according to JPMorgan's Emerging Markets Bond Index Plus (EMBI+) 11EMJ .JPMEMBIPLUS.
The S&P announcement saw bonds trim gains in informal trade after the market closed, traders said.
The peso currency firmed against the dollar, breaking a run of four straight losses, as investors sold greenbacks on expectations that the jump in bond prices would reduce demand for the U.S. currency.
In formal interbank trade, where the central bank regularly intervenes to stabilize the local currency, the peso strengthened 0.54 percent to 3.0325/3.035 per dollar ARS=RASL.
In informal trade between foreign exchange houses, as measured by Reuters, the peso gained 0.24 percent to end at 3.0675/3.07 per dollar ARSB=. (Reporting by Walter Bianchi and Jorge Otaola; Writing by Helen Popper)