UPDATE 2-U.S. judge orders Argentina, creditors meet until deal reached
(Updates with further details on court hearing)
By Nate Raymond and Joseph Ax
(Reuters) - A U.S. judge ordered Argentina and investors who did not participate in the country's past debt restructurings to meet "continuously" with a court-appointed mediator until a settlement is reached, warning of the threat of a new default.
U.S. District Judge Thomas Griesa in New York told Argentina and lawyers for investors who declined to restructure their bonds after the country defaulted on about $100 billion in 2002 that time was running out to reach a deal and avert a fresh default.
"That is about the worst thing I can envision. I don't want that to happen," the judge said.
Jonathan Blackman, a lawyer for Argentina, Latin America's No. 3 economy, said even with around-the-clock talks, it would be "unlikely if not impossible to result in settlement."
"It simply can't be done by the end of the month," he said.
Griesa ordered the parties to meet with Daniel Pollack, a New York lawyer appointed to oversee settlement talks, "continuously until a settlement is reached." Pollack scheduled a meeting Wednesday at 10 a.m. EDT (1400 GMT).
Pollack, who was appointed June 23 as a mediator, has been holding meetings with the parties, publicly acknowledging talking twice with Argentine officials.
Argentina's over-the-counter dollar-denominated bonds slid following the hearing, reversing earlier gains. The bid price on the Discount bond was down 3.3 percent on the previous day at $84.90 at 1508 local time (1808 GMT) while the Par bond fell 4.8 percent at $48.75.
"It's probably Argentina's apparently rigid position, insisting it cannot do anything in July, rather than Griesa's response, that is weighing on markets," said Alejo Costa, head of strategy at investment bank Puente.
Argentina has been pushed to the brink of a fresh debt default by U.S. court decisions that it pay $1.33 billion plus interest to bondholders who did not participate in debt swaps in 2005 and 2010. The holdouts are led by by Elliott Management's NML Capital Ltd and Aurelius Capital Management.
The country argues paying the holdouts would open it up to as much as $15 billion in claims from other investors and further strain its financial condition.
At Tuesday's hearing, Argentina renewed its request the judge stay enforcement of his orders. Griesa said the step was not necessary, as there are "ways to do something to avoid default."
A lawyer for Aurelius, Edward Friedman, meanwhile urged him to reconsider part of a decision last month allowing Citigroup Inc to process payments Argentina made for bonds governed by the country's local laws. Friedman said payments should not be allowed on U.S. dollar-denominated bonds.
Bank of New York Mellon Corp asked the judge to allow it to hold onto $539 million Argentina deposited last month for a payment to the restructured bondholders. Griesa previously ordered the sum returned, saying it violated his orders.
Griesa on Tuesday issued no ruling on the Citigroup issue, and told BNY Mellon and the holdouts to see if they could reach an agreement. (Reporting By Nate Raymond and Joseph Ax in New York and Sarah Marsh and Richard Lough in Buenos Aires; Writing by David Gaffen; Editing by Noeleen Walder, Chizu Nomiyama and Andrew Hay)
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