BUENOS AIRES, July 18 (Reuters) - Argentine stocks and bonds rallied on Friday after the government revoked a tax hike on soy exports that had sparked four months of farm protests.
The MerVal .MERV benchmark stock index rose 0.72 percent to close at 1,907.11 points after falling as much as 1.15 percent in early trading.
"The MerVal rose after the government's decision, but it doesn't mean the downward tendency of stocks in the medium-term will change. The government still needs to adopt other measures on the economy," said Leopoldo Olivari of the Bacque brokerage.
Banco Hipotecario BHI.BA rose 7.75 percent to 1.25 pesos, while index heavyweight Tenaris (TENA.BA)(TS.N), the world's largest producer of seamless steel tubes for the energy industry, fell 4.82 percent to 93.8 pesos.
Cabinet Chief Alberto Fernandez announced the government repealed the tax increase a day after the Senate rejected a bill to ratify the measure imposed by President Cristina Fernandez in March.
Trade volume was a modest $39 million. Among active issues, 75 rose, 28 fell and 18 unchanged.
Argentine bonds traded on the local market also rose after the government's announcement, bouncing back from losses earlier in the session and gaining about 1.3 percent on average in over-the-counter trade.
The prolonged farm conflict has weighed on bonds in recent months.
The government decision "put investors at ease," one trader said.
On the foreign exchange market, the peso closed unchanged amid heavy intervention from the central bank, traders said.
In formal interbank trade, where the central bank regularly intervenes, the peso ARS=RASL ended flat at 3.0225/3.0250 per dollar.
In informal trade between foreign-exchange houses, as measured by Reuters, the peso was unchanged at 3.0775/3.0800 per dollar ARSB=. (Reporting by Walter Bianchi and Jorge Otaola; Writing by Kevin Gray; Editing by Leslie Adler)