Argentina slams U.S. judge in debt case; peso hits record low

BUENOS AIRES (Reuters) - Argentina came out swinging on Wednesday against the U.S. judge overseeing its debt default case, defying a threatened contempt order and dashing market hopes it might soon restart talks with the hedge funds suing the country.

The country's peso currency hit a record low on fears that the already years-old debt saga would linger on indefinitely.

A group of holdout investors have gone to court for full repayment on sovereign bonds that went into default in 2002. The funds rejected debt restructurings in 2005 and 2010, holding out for better terms.

U.S. District Court Judge Thomas Griesa, who has presided over the long-running legal battle, said on Friday he would issue a contempt order unless Argentina stopped claiming it had met its obligations and was not in default.

Far from backing off, Cabinet Chief Jorge Capitanich said Griesa had not grasped the case's complexities and that no new talks had been scheduled with the hedge funds.

"The proper conditions do not exist to negotiate," Capitanich told reporters in Buenos Aires.

Argentina's peso weakened more than 1.5 percent on Wednesday to a record low 13.15 per U.S. dollar in unofficial trade . Foreign exchange controls force most Argentines to buy dollars on the black market, which is widely seen as a truer rate of exchange than the official rate of 8.2750 per greenback.

In 2012, Griesa ordered Argentina to pay a group of holdout hedge funds led by Elliott Management Corp and Aurelius Capital Ltd $1.33 billion plus interest and barred it from repaying the holders of exchanged debt without paying the holdouts too.

In June, Argentina deposited $539 million into the account of an intermediary bank to make a June 30 coupon payment. Griesa ruled the deposit illegal and ordered the money frozen.

As a result, Argentina effectively missed the payment. The International Swaps and Derivatives Association (ISDA) will hold an auction on Aug. 21 to settle Argentina's default swaps, Thomson Reuters' IFR reported.

Holders of the restructured bonds have asked Griesa to allow the intermediary bank to release the money, and Capitanich criticized the judge for not acting on those requests.

"His lack of decision clearly comes from not understanding the process, not understanding Argentina's status as a sovereign country," Capitanich said.

Argentina derides the holdout funds as "vultures" out to wreck the country's finances in their pursuit of huge profits. Opinion polls show most Argentines side firmly with the government.

Economy Minister Axel Kicillof on Tuesday posted a drawing on his Facebook page of a beady-eyed vulture wearing a shirt with the letters "U.S.A." and emblazoned with the U.S. flag. Next to the drawing are written the words "greed" and "cruelty". (https://www.facebook.com/pages/Axel-Kicillof/116053261893854)

With no negotiations scheduled, the case is in limbo while international banks struggle to reach a deal to buy some of the debt held by the holdouts.

Over-the-counter sovereign bonds traded in Buenos Aires fell by an average 1.3 percent on the day.

(Additional reporting by Davide Scigliuzzo of Thomson Reuters IFR in New York, Daniel Bases in New York, Sarah Marsh and Walter Bianchi in Buenos Aires; Editing by Jonathan Oatis, Paul Simao, Chizu Nomiyama and Peter Galloway)