By Walter Bianchi
BUENOS AIRES (Reuters) - Argentina said a team of technocrats, and not its economy minister, would attend a meeting in New York with a court-appointed mediator on Friday, as it seeks to resolve a dispute with holdout investors over its sovereign debt.
Argentina needs to seal a deal before a July 30 deadline with investors who rejected its debt restructurings after its catastrophic 2002 default on $100 billion. Growing optimism it will reach one sent its bonds higher on Thursday.
Without a deal, Latin America's No. 3 economy risks tumbling into a new default as it battles a recession, one of the world's highest inflation rates and dwindling foreign reserves.
"The mission that will meet with the special master Daniel Pollack in New York will be carried out by the juridical and financial team of the economy ministry and other areas of the government," Argentine Cabinet Chief Jorge Capitanich told reporters at his daily briefing.
He said Economy Minister Axel Kicillof will not participate.
U.S. District Judge Thomas Griesa has ruled Argentina must immediately pay the group of holdouts, led by hedge funds Elliott Management Corp and Aurelius Capital Management, the bonds' full value worth $1.33 billion plus accrued interest.
Griesa's ruling also ordered Argentina not to pay out to other investors who accepted large writedowns on their debt holdings until it had settled with the holdouts. More than 92 percent of investors agreed to receive less than 30 cents on the dollar in restructurings carried out in 2005 and 2010.
When Argentina in late June deposited a coupon payment worth about $539 million with the government's transfer agent, Bank of New York Mellon (BONY), Griesa blocked any onward transfer.
Since then the bank has faced competing demands: from Griesa's court order, from investors who want their interest payment and from Argentina, which says the money no longer belongs to it.
On Thursday, BONY said Euro bondholders had threatened to sue the bank if it returned the funds to Argentina.
"(The bank) seeks clarification that it may comply with this Court's Injunctions by retaining the funds received from Argentina in the Banco Central Accounts where they are presently held," BONY wrote in the opening statement of the motion.
Argentina says paying the hedge funds in full could prompt claims totaling more than $100 billion. The country now has just $29.5 billion in reserves.
For years, Argentina has refused to negotiate with the holdouts, portraying them as "vultures" circling the corpse of its 2002 default that plunged millions of Argentines into poverty, and buying bonds in the secondary market at a steep discount.
But faced with the specter of default, it now says it is willing to talk, and wants to complete a deal with all of its creditors, including other holdouts and the investors who accepted the tough terms of its 2005 and 2010 debt swaps.
Creeping optimism that Argentina will reach a deal sent benchmark Discount bonds up 5.7 percent to 93.50 on the local over-the-counter market earlier on Thursday, while Par bonds rose 8.10 percent to 53.40.
Griesa appointed Pollack to find common ground in the years-long battle that has delayed Argentina's return to international capital markets since its 2002 banishment.
Kicillof, who has settled disputes with the Paris Club of creditor nations and Spain's Repsol in recent months in an attempt to regain the trust of foreign investors, spent four hours on Monday discussing the case with Pollack.
If Argentina does not complete a deal, Judge Griesa has said he will continue blocking it from making a coupon payment on its restructured bonds that was already due on June 30. A 30-day grace period ends July 30.
(Additional reporting by Sarah Marsh, Nessi Hernan and Richard Lough; Editing by W Simon, J Benkoe and Ken Wills)