By Jorge A. Otaola and Richard Lough
BUENOS AIRES (Reuters) - Argentina on Friday accused the U.S. judge who called the country's new debt restructuring plan illegal of making "imperialist" comments against the South American nation.
Latin America's No. 3 economy tipped into its second default in 12 years in July after U.S. District Judge Thomas Griesa blocked payments to holders of issued under U.S. law that was restructured following its record $100 billion default in 2002.
Griesa ruled that measures proposed by Argentina's president late on Tuesday to make debt payments locally and push bondholders to bring their debt under Argentine law violated past court rulings. But he stopped short of holding the country in contempt.
President Cristina Fernandez's measures, if enacted and executed, would potentially allow Argentina to skirt Griesa's court orders and thus resume interest payments on an estimated $29 billion in restructured bonds.
Argentine Cabinet Chief Jorge Capitanich said Griesa's choice of words was "unfortunate, incorrect and even, I would say, imperialist expressions".
Argentine bonds extended losses but the peso halted a two-day rout, firming slightly over 1 percent on the black market to 13.750 per dollar, It struck a record low of 14.000 on Thursday.
Marcelo Trovato, financial analyst at consultancy Pronostico Bursatil, said Griesa's move not to level contempt charges against Argentina was aiding the peso erase some of its cumulative 5.2 percent loss on Wednesday and Thursday.
The government has pulled no punches in its stinging criticism of Griesa. It has accused the judge of abusing Argentina's national sovereignty and of siding with the U.S. investment funds who rejected large writedowns in the wake of 2002 and are suing the country for full payment on their bonds.
It said Griesa's remarks showed a "complete ignorance of the functioning of democratic institutions" in a strongly worded statement issued late Thursday.
CAPITAL FLIGHT SEEN
Argentine dollar-denominated Discount bonds due in 2033 traded 2.7 percent lower to bid 78.000 cents on the dollar, while the Par bond maturing in 2038 was down 0.2 percent to bid at 48.500.
Fernandez's stance makes a resolution to the debt saga increasingly unlikely before the October 2015 presidential election, in which she is constitutionally barred from running.
"What may change that dynamic is a significant deterioration in the macro environment coupled with a meaningful further devaluation of the peso," said Nasser Ahmad, managing partner and chief investment officer of New York-based hedge fund DA Capital.
"That may force the current government back to the negotiating table," he added.
The peso's mid-week slump reinforced expectations that a drawn-out crisis will fuel one of the world's highest inflation rates, sap shrinking foreign reserves and deepen the country's recession.
"If capital continues to pour out of the economy, the authorities will probably have to devalue," wrote David Rees, emerging markets economist at Capital Economics.
(Additional reporting by Nishant Kumar in London, Editing by W Simon)
