Argentine markets fall again on default fears

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Argentine markets fall again on default fears Thursday October 4, 3:05 PM EDT

By Brian Winter

BUENOS AIRES, Argentina, Oct 4 (Reuters) - Argentine markets lurched lower on Thursday as investors bet the embattled government would be unable to control spending enough to prevent a default on part of its $132 billion public debt.

"Nobody is willing to buy anything with the word 'Argentina' on it right now, stocks or bonds," said Martin Marini, a trader for Fescina brokerage.

"We're not just talking about the government sinking here. This disaster is dragging all our companies along with them. It's like they're being killed one by one," Marini said.

Argentina's benchmark Global 2008 dollar bond traded down 4.07 percent to 53 points.

The leading MerVal (MERV) stocks index followed bonds lower in late afternoon trading, losing 3.82 percent to 206.34 points, just above fresh decade-lows set earlier in the session. The MerVal is off 16 percent this week and 50 percent for the year.

Beset by extremely depressed consumer confidence and the threat of a global recession, economists say Argentina has little chance of bucking a deep three-year slump and returning to economic growth -- widely seen as the only way Argentina can avoid defaulting on its debt.

"I don't know if I'll be buying even after the elections. The prices on both bonds and stocks are very attractive at this time but I don't believe in the economy or the country right now," said Julian Cohen, a trader for Cohen brokerage.

Traders said they were tormented by fears that a larger-than-expected 14 percent year-on-year drop in September tax revenues could leave the government unable to meet its pledge to balance its budget.

Argentina's "zero deficit" plan to spend only what it earns in tax revenues is both an accounting exercise to prove to investors it can control spending and a practical reality since most creditors have turned their back on the indebted country.

Investors worry that Argentina's weakened government might not muster the political capital needed to make massive spending cuts needed to comply with the "zero deficit" plan ahead of key Oct. 14 legislative elections.

PRESIDENT SAYS NO DEVALUATION

Argentina's government said it would keep its promises.

"The government maintains a very precise stance: We will maintain the 'zero deficit' and there will be no devaluation here," said President Fernando de la Rua on Wednesday, echoing what has become a routine daily denial of market rumors.

Cabinet Chief Chrystian Colombo told local radio that Argentina would opt for dollarizing its peso currency -- already pegged at par to the dollar -- rather than devaluing it if the economic crisis forced its hand.

On the Buenos Aires stock exchange, volume was moderate at $8.6 million. Twenty shares declined, eight advanced and two shares traded unchanged.

Leading share Grupo Financiero Galicia (GFG), whose main unit Banco Galicia (GAL) holds a large amount of Argentine public debt, fell 6.38 percent to $0.484.

Argentina's country risk, which measures the premium the government must pay to lure investors away from safe-haven U.S. Treasuries, widened 68 basis points to 1,834 after earlier fresh six-year highs.

On U.S. markets, the Nasdaq (IXIC) Composite index gained 2 percent, while the blue-chip Dow Jones (DJI) industrial average was flat.

http://money.iwon.com/jsp/nw/nwdt_rt.jsp?cat=USMARKET&src=201&feed=reu§ion=news&news_id=reu-n04138089&date=20011004&alias=/alias/money/cm/nw

-- Martin Thompson (mthom1927@aol.com), October 04, 2001


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