By Drew Benson
Oct. 29 (Bloomberg) -- Argentina's peso rebounded from its lowest in almost six years after the central bank offered to buy $1 billion of the local currency to stem a two-week slide sparked by concern the country will default.
The peso rose 0.1 percent to 3.3656 per dollar at 4:50 p.m. New York time after tumbling as much as 1.6 percent earlier to 3.4226. The central bank initially offered to buy pesos at 3.39 per dollar before lowering the rate to 3.37, a bank spokesman said.
The intervention ``set a floor'' for the exchange rate, sparking the rebound, said Fernando Izzo, a currency trader with Buenos Aires-based ABC Mercado de Cambio. ``This market is crazy.'' Total volume a record $1.082 billion, he said.
The central bank bought and later sold back pesos, a bank spokesman said. The bank's net peso purchases on the day totaled about $200 million, he said.
The peso has dropped 5 percent in the past two weeks amid concern President Cristina Fernandez de Kirchner's bid to nationalize some $26 billion of private pension funds is an effort to seize the cash to avert a default. The peso plunged 2.1 percent yesterday, its biggest one-day decline in five years.
Fernandez's nationalization plan needs approval by Congress, which began committee hearings yesterday on the matter. Argentina's debt payments will rise to $21.7 billion next year amid a decline in tax revenue from commodity exports, Morgan Stanley estimates.
`Not Sustainable'
The government released a resolution today that gives the pension funds, known as AFJPs, three days to bring funds invested overseas back into Argentina, a move that may support the peso.
Argentina is dipping into foreign reserves built up during a five-year rally in prices on its wheat, corn and soybean exports. Reserves totaled $46.3 billion yesterday, down from $47.1 billion at the end of September, according to the central bank.
``Using the exchange rate as an anchor implies losing reserves and therefore the policy is not sustainable in the medium term,'' Javier Finkman, an economist with HSBC Bank Argentina in Buenos Aires, said in a report today. The pension fund repatriation plan ``will only buy some time at the current pace of dollarization.''
The yield on Argentina's 5.83 percent peso bonds due in 2033 rose 4 basis points to 21.56 percent, according to Citigroup Inc.'s local unit. The yield on Argentina's 8.28 percent dollar bonds due in 2033 declined 78 basis points to 29.64 percent, according to JPMorgan Chase & Co.
To contact the reporters on this story: Drew Benson in Buenos Aires at Abenson9@bloomberg.net
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