(Recasts; adds movement in bonds, peso)
BUENOS AIRES, July 17 (Reuters) - Argentine stocks were up nearly 2.5 percent in midday trade on Thursday, while the peso firmed and bond prices rose after the Senate voted against a controversial government-backed tax increase on soy exports.
Markets welcomed the vote against a measure that sparked four months of farm protests in Argentina, a major global supplier of soy, corn, wheat and beef, despite continued uncertainty over the government's next step.
The MerVal .MERV benchmark stocks index were up 1.8 percent at 1,911.28 after rising as much as 2.3 percent.
Gains were led in part by food producer and grains exporter Molinos Rio de la Plata (MOL.BA), whose shares surged 8.1 percent to 9.35 pesos.
Meanwhile, Argentine bonds traded on the local market also got a boost, rising around 1 percent on average in over-the-counter trade.
The peso-denominated Disc bond ARDISCP=RASL, which matures in 2033, rose 1.8 percent according to the bid price. State-run banks have concentrated their purchases recently in this paper, traders said.
On the foreign exchange market, the peso firmed in a quiet session in which traders said the central bank continued to sell dollars to sustain the Argentine currency.
In formal interbank trade, where the central bank regularly intervenes, the peso ARS=RASL was trading 0.17 percent stronger at 3.0200/3.0225 per dollar.
In informal trade between foreign-exchange houses, as measured by Reuters, the peso gained 0.32 percent to change hands at 3.0725/3.0750 per dollar ARSB=.
"Once this conflict is resolved, a flood of dollars will hit the market, which will allow the central bank to rebuild its foreign reserves," currency trader Jose Ansa said.
The central bank has sold about $2.7 billion in dollar reserves to prop up the peso during the four-month-long farm dispute. (Reporting by Walter Bianchi; Writing by Hilary Burke; Editing by James Dalgleish)