* Stocks, bonds rebound from Tuesday's sell-off
* Peso weakens as safe-haven dollar demand picks up
By Jorge Otaola
BUENOS AIRES, Jan 13 (Reuters) - Argentine stocks rallied in afternoon trade on Wednesday, while bonds reversed earlier losses after the government vowed to press on with a debt swap despite a row over plans to use foreign reserves to pay debt.
Argentina is sending a "strong signal" that the swap to mop up defaulted sovereign bonds is going ahead as planned, Economy Minister Amado Boudou told Reuters in an interview. For details see [ID:N13136742]
Argentine bonds traded over the counter in Buenos Aires traded up by an average of 0.3 percent, after reversing losses of 0.9 percent earlier in the session. The peso-denominated Discount bond ARDISCP=RASL was up 1.9 percent to an ask price of 103.80.
"The recovery of the bonds was a reasonable readjustment," said Christian Reos, an analyst at the Allaria Ledesma and Co brokerage. He said the market was recovering from the sell-off sparked on Monday by a U.S. judge's decision to freeze $1.7 million in central bank funds in the United States.
"Boudou's comments ... restore calm to the market by maintaining the idea that the swap is still on course," he added.
A similar assessment of the impact of the U.S. embargo helped lift local stocks, traders said. The MerVal index .MERV last traded 2.85 percent higher to 2,335.31 points.
"We've got a justified rebound in the MerVal because investors have realized the scope of the embargo, although the political situation remains uncertain," said Alejandro Stratiotis, a trader with the Amirante Galitis brokerage.
"Not much was embargoed ... and investors seem tired of all these comings and goings," he added.
The risk spread on Argentine bonds narrowed by 4 basis points to 725 basis points over comparable U.S. Treasuries, according to the benchmark J.P. Morgan Emerging Market Bond Index 11EMJ.
In the foreign exchange market, the peso weakened due to safe-haven dollar buying amid continued political tensions, traders said.
In formal interbank trade ARS=RASL, the Argentine currency was down 0.13 percent at 3.7975/3.78. In informal trade between foreign exchange houses, the peso ARSB= weakened 0.32 percent to 3.8775/3.8825 peso per dollar.