* Stocks .MERV up 0.95 percent, peso slightly weaker
* Locally traded bonds rise an average 2.0 percent (Updates to close)
By Jorge Otaola and Walter Bianchi
BUENOS AIRES, Oct 28 (Reuters) - Argentine bonds and stocks rose on Thursday, spurred by investor confidence that the death of former President Nestor Kirchner could herald an era of more market-friendly economic policies.
For more on Kirchner see [ID:nN28110442].
Kirchner died of a heart attack on Wednesday when local financial markets were closed for a national holiday, but Argentine assets abroad soared on news of his sudden departure.
Investors disliked the unorthodox economic policies of Kirchner, who was a key power broker in the current government of his wife, President Cristina Fernandez. He had been expected to run for a second term in an October 2011 election.
"With Kirchner's death, a whole range of political possibilities opens up," said Mariano Tavelli, a trader at the Tavelli & Co brokerage in Buenos Aires.
Locally traded Argentine bonds RPLATC closed up 3.0 percent on average in over-the-counter trade after rising as much as 4.0 percent earlier in the session.
Among the biggest gainers on the debt market was the peso-denominated Discount bond ARDISCP=RASL, which soared 10.7 percent to an ask price of 175.80.
Argentina's portion of the JP Morgan EMBI Plus sovereign bond index 11EMJ tightened 20 basis points to 513 basis points. The index overall was just 2 basis points tighter.
The benchmark MerVal .MERV stock index ended up 1.17 percent at 2,954.86, with gains led by media group Grupo Clarin CLA.BAGCSAq.L, ending up 22 percent at 17.3 pesos per share.
"The MerVal reacted to an expectation that companies will be under less pressure and it was adjusting for yesterday's gains on Wall Street," Tavelli said.
The government has been battling with Clarin for more than two years. Kirchner frequently accused it of trying to destabilize his wife's administration, while the media group in turn accuses officials of a harassment campaign.
On the foreign exchange market, the peso traded down 0.12 percent at 4.0350/4.0400 per U.S. dollar ARSB= in informal trade between foreign exchange houses, as measured by Reuters.
In formal interbank trade, the peso was trading flat at 3.9550/3.9575 per dollar ARS=RASL. (Writing by Luis Andres Henao and Eduardo Garcia; Editing by Dan Grebler and Diane Craft)