October 28, 2008 / 10:19 PM / 12 years ago

RPT-Argentina stocks rally, but bonds and peso sag

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BUENOS AIRES, Oct 28 (Reuters) - Argentine stocks soared on Tuesday, lifted by a rally in global markets, but bonds sank for a 10th straight session and the currency dipped to its weakest level in six years.

The MerVal index of leading stocks rose 6.58 percent to close at 895.06 points after closing a day earlier at a five-year low. Gains were led by energy-related shares, including index heavyweight Tenaris TENA.BA (TS.N) and Petrobras APBR.BA (PETR4.SA).

Regional markets, including Brazil’s Bovespa index .BVSP, were boosted by a rally on Wall Street that fueled demand for emerging market securities.

“Thanks to Tenaris and Petrobras, the MerVal joined the other international markets in the euphoria,” said Claudio Szlaien, an analyst at Marlon Recursos Financieros brokerage.

A government plan to nationalize Argentina’s private pension funds continued to weigh on Argentine bonds and the peso currency.

Sovereign bonds traded on the local over-the-counter market dropped an average 1.5 percent in afternoon trade, accumulating a 41.8 percent drop over the last 10 sessions and shedding 61 percent in the month of October.

The peso slipped 2.12 percent to 3.3750/3.3700 ARS=RASL per U.S. dollar in the formal interbank market, the weakest level since an economic crisis and devaluation in 2002.

In informal trade between foreign exchange houses, as measured by Reuters, the peso shed 1.62 percent at 3.445/3.45 per dollar ARSB=.

Most bonds traded locally are at historic lows, with investors pricing in default fears. The dollar-denominated Par bond was among Tuesday’s most liquid ARPARD=RASL, dropping 3.54 percent to an ask price of 17.70.

Traders said investors continued to dump the bonds in a crisis of confidence after the government announced last week it would take over the private pension fund system, possibly drying up liquidity in local markets.

“As long as the conflict over the pension funds continues, bonds will continue weak,” said Augusto Farina, a trader with Amirante Galitis brokerage.

The head of the state social security agency, which will take over management of the pensions if the takeover is approved by Congress, met on Monday with pension fund administrators and asked them to preserve market liquidity by holding onto sovereign bonds and renewing short-term deposits in local banks when they mature.

The pension fund move by the government has been read as a desperate measure to stave off default next year, when the government faces rising debt obligations in a context of frozen credit markets.

On the MerVal, Tenaris, the world’s leading producer of seamless steel tubes for the oil industry, rose 14.6 percent to close at 32 pesos.

Buenos Aires-listed shares of Brazilian state-run oil company Petrobras rose 8.757 percent to 38.5 pesos. (Reporting by Jorge Otaola and Walter Bianchi; Writing by Kevin Gray; Editing by Leslie Adler)

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