Argentina sues Citibank over deal with holdout creditors

BUENOS AIRES (Reuters) - Argentina is suing Citibank Argentina for striking a deal with a group of U.S. creditors fighting the government over unpaid debt, its economy minister said on Wednesday, marking a fresh low in deteriorating relations between it and the bank.

Citibank Argentina, a subsidiary of Citigroup , has found itself at the center of a lengthy court battle after the government demanded it process interest payments on exchanged debt, in defiance of U.S. court orders.

The bank last month agreed with the litigating investors not to appeal the court's injunction blocking Argentina's payments if it was allowed to process two one-off transfers in March and June to help it quit its local bond custody business.

Kicillof said the agreement "violated and interfered with regulations governing our public debt."

Argentina denigrates the funds which spurned bond swaps after the country's record default o=n $100 billion in 2002 as "vultures" bent on crippling an economy in the pursuit of mega profits.

Kicillof lampooned Citibank Argentina for signing "a deal with the devil" and said the government had asked the Argentine courts to nullify the pact.

(Reporting by Richard Lough; Editing by Richard Chang)