(Adds closing prices)
BUENOS AIRES, Sept 22 (Reuters) - Argentine bonds and stocks rallied on Monday after President Cristina Fernandez said the government was studying a proposal to reach a deal with "holdout" creditors who rejected a 2005 debt swap.
The MerVal index of leading shares .MERV ended 1.67 percent higher at 1,690.45 points after rising more than 5.0 percent in mid-afternoon trade after the president's announcement in New York, which was carried on local television.
"The president's declarations fed a rise on the MerVal led by bank issues," said Jorge Alberti, analyst with financial Web site Elaccionista.com.
Volume leader Grupo Financiero Galicia GFG.BA, owner of Argentina's biggest bank, gained 4.17 percent to 1.5 pesos per share. Argentine banks are heavy holders of the country's sovereign debt, so they always get a boost from higher bond prices.
Volume on the Buenos Aires Stock Exchange was average at $25 million. Of active issues 51 advanced, 18 declined and 9 ended unchanged.
The news on the holdout offer allowed the MerVal index to buck the global trend in markets on Monday, when most bourses fell due to uncertainty over a United States plan to bailout the financial industry.
In Argentina, locally traded government bonds rose 3.9 percent on average in over-the-counter trade following the president's announcement.
The peso-denominated Par bond leaped 9.7 percent AFPARP=RASL.
Argentina's peso currency also got a lift from the president's comments.
The peso, which is heavily controlled by the Central Bank, rose 0.56 percent to 3.0975/3.1000 per dollar ARS=RASL in formal interbank trade. In informal trade between foreign exchange houses, as measured by Reuters, the peso strengthened 0.56 percent to 3.1400/3.1425 per dollar ARSB=.
Fernandez said three major banks had submitted a proposal to her government that would be "much more favorable" to Argentina than the terms of the 2005 swap.
But Argentina's Congress passed a law barring the government from reopening the swap until 2010 at the earliest.
Fernandez said she and her ministers will study the proposal and, if they approve it, will send it to Congress for debate.
Argentina has refrained from issuing debt under international legislation since the restructuring, for fear of judicial embargoes by the holdout creditors. (Reporting by Jorge Otaola and Walter Bianchi; Writing by Fiona Ortiz, Editing by Chizu Nomiyama)