U.S. judge declines to find Argentina in contempt of court

Griesa said the proposal unveiled by Argentine President Cristina Fernandez on Tuesday was illegal but that a contempt order now would not help bring about a settlement in the case between the Republic and deep-pocketed holdout creditors.

Holdout investors NML Capital Ltd, an affiliate of Elliott Management Corp and Aurelius Capital Management asked Griesa to issue a contempt order, in the latest twist of its longstanding battle to collect on its court award of $1.33 billion plus interest on defaulted debt. They said Argentina's proposal, which is being brought before its congress, would violate Griesa's anti-evasion rulings that payments not be shifted outside of the U.S. court's jurisdiction.

Griesa reiterated that he hoped there would be a settlement in the case. "It does not add anything to the scales of settlement to make a finding of contempt," Griesa said.

(Reporting By Nate Raymond and Joseph Ax; Writing by Daniel Bases and Noeleen Walder; Editing by Diane Craft)