UPDATE 1-Argentina asks U.S. court to block payouts for debt holdouts

* Appeal challenges ruling for holdout creditors

* Argentina says order would harm future debt swaps

* Federal appeals court in NY to consider Argentina case

NEW YORK, Dec 29 (Reuters) - Argentina is urging a U.S.

appeals court to reverse an order requiring the country to pay

$1.33 billion to creditors who did not participate in its two

debt restructurings, a legal case that could have huge

ramifications for global debt markets.

Lawyers for Argentina's government said in court papers

filed late on Friday that a trial judge was "wrong to ignore the

chorus of voices" who opposed his November order on payments to

so-called "holdout" creditors.

Those payments, to a court-controlled escrow account, would

threaten the service of $24 billion in restructured debt,

Argentina's lawyers wrote in papers filed in the 2nd U.S.

Circuit Court of Appeals in New York.

"There is no authority permitting a U.S. court to order a

sovereign to bring its immune assets into the United States in

order to 'turn over' or distribute them to its creditors,"

lawyers for the Argentine government said in the 69-page filing.

The appeals court is expected to decide next year whether

to force Argentina to pay the $1.33 billion to investors in the

defaulted debt. The decision could have broad impact on the

ability of governments to raise money by selling bonds and on

strained countries' response to economic crises.

The case stems from Argentina's $100 billion sovereign debt

default 11 years ago. Argentina is trying to avoid paying the

holdout creditors, who refused to take part in massive debt

restructurings in 2005 and 2010.

About 92 percent of the bonds were restructured, giving

holders between 25 cents and 29 cents on the dollar.

But the holdouts, led by Elliot Management Corp affiliate

NML Capital Ltd and the Aurelius Capital Management funds,

demanded to be paid in full. Argentina calls the holdouts

"vultures" and has resisted.

In the papers filed on Friday, Argentina said it is willing

to resolve the litigation by reopening the restructuring offer,

a move that would require legislative permission but that would

likely be rejected by plaintiffs.

"The executive is prepared to once again present to Congress

a proposal that definitively treats all holdout creditors on the

same terms as participants in the Republic's 2010 exchange

offer," the filing says.

"The Republic has already made two debt restructuring offers

that plaintiffs chose to reject. It cannot present a proposal

that treats holdout creditors better than exchange bondholders."

LONG-RUNNING CASE

In a separate court filing, lawyers for holders of

restructured bonds said that holdouts should not be offered

better terms than "innocent" bondholders who took part in the

swaps. The restructured bondholders include funds managed by

Gramercy Financial Group LLC and BlackRock Inc,

according to the court papers from the group.

The case has run for years in U.S. courts. Oral arguments

before the 2nd Circuit on the appeal are set for Feb. 27, 2013.

A decision against Argentina would deal a setback to

President Cristina Fernandez, who is trying to avert the fallout

of a potential technical default on tens of billions of dollars

of debt.

In a statement late on Friday, an NML spokesman said

Argentina was well placed to compensate the holdouts, citing its

"more than $43 billion in foreign currency reserves" and

billions more in other resources.

"Today's filing by the Republic once again demonstrates

Argentina's irrational persistence in evading its contractual

obligations and the orders of U.S. courts," said Peter Truell, a

spokesman for NML.

There was no immediate reaction comment from Argentina.

Also on Friday, the U.S. government filed a

friend-of-the-court brief in support of Argentina's bid for the

appeals court to reconsider its October ruling that found

Argentina had improperly discriminated against bondholders who

did not participate in the debt swaps.

The U.S. government said countries needed leverage to garner

broad creditor support for a restructuring. It cited the recent

debt exchange in Greece as an example of a situation in which

holdouts can threaten orderly bond restructurings.

JUDICIAL REPRIEVE

Following the appeals court's October decision, U.S.

District Judge Thomas Griesa in Manhattan on Nov. 21 commanded

Argentina to put the payments for the holdouts into escrow by

Dec. 15.

But on Nov. 28, the 2nd Circuit gave Argentina a reprieve,

saying it did not need to make the escrow payment for now.

The battle has even extended to the 2-1/2 month seizure of

the Argentine naval vessel ARA Libertad in Ghana at the request

of NML. The boat was freed on Dec. 19 following a ruling by an

international admiralty tribunal.

In its court papers, Argentina said that if Griesa's orders

were allowed to stand, "we may very well see the end of such

restructurings and enter an era where debt crises are

unresolvable. This will increase litigation, not reduce it."

The case is NML Capital Ltd et al v. Argentina, 2nd U.S.

Circuit Court of Appeals, No. 12-105.

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