(Adds opposition lawmakers' views, context)
By Alejandro Lifschitz and Hugh Bronstein
BUENOS AIRES, Sept 11 (Reuters) - Argentina's Congress on Thursday overwhelmingly passed a debt bill aimed at defying a U.S. court ruling which tipped the country into default for the second time in 12 years.
After an overnight debate, the lower house of the legislature passed the bill which authorizes the government to circumvent the U.S. court and ensure bondholders receive upcoming interest payments on an estimated $29 billion in bonds, on which the country defaulted in July.
Government allies brushed aside opposition arguments that the bill would be ineffective because it failed to meet a key requirement of the original bond contracts. The bill now goes to President Cristina Fernandez for signature.
Under the law, Argentina could make payments on its foreign-held bonds locally or elsewhere beyond the reaches of the U.S. court. It also encourages investors to move their Argentine debt from the United States or other foreign jurisdictions to either Argentina or France via an exchange of debt.
Argentina fell into default in July after U.S. District Judge Thomas Griesa in New York barred the Bank of New York Mellon from transferring a coupon payment to bondholders unless the government settled with a group of hedge fund plaintiffs at the same time.
The ruling affected debt restructured under foreign law after Argentina's $100 billion default in 2002.
Griesa has called the plan to circumvent his court illegal.
Economy Minister Axel Kicillof acknowledged in Congress on Tuesday that creditors had little appetite for the plan, which allows a unit of state-owned Banco Nacion to replace BONY Mellon as the conduit for payments.
Alejo Costa, chief strategist at local investment bank Puente, said he did not expect many creditors to shift their Argentine debt.
"The government will at least send the signal they want," Costa said. "In their view, they're doing what they can to make the payment."
The government is in a race against the clock to make a $200 million coupon interest payment due Sept. 30 on its restructured bonds. It needs an intermediary bank outside Griesa's jurisdiction by which it can deposit the money.
The lower house of Congress passed the bill 134-99 early Thursday morning after a marathon debate that started Wednesday afternoon. The Senate had already approved the proposal last week.
Argentine President Cristina Fernandez has called the hedge fund creditors "vultures" and accused Griesa of interfering in her nation's national sovereignty. She announced the new debt bill last month to get around his ruling.
If creditors refuse to participate in plan, the government can under the new law try to replace the Bank of New York Mellon Corp, the trustee for bond payments, with Nacion Fideicomisos, a unit of state-controlled Banco Nacion. That way, it can service its debt locally.
But skepticism over this part of the plan is growing, too. Kicillof told lawmakers on Tuesday that the government was open to suggestions from bondholders about where to make payments if they were unhappy with its proposal.
Opposition lawmakers said the bill will do nothing to resolve the legal imbroglio because any trustee must have a Corporate Trust Office in New York's Manhattan borough and be conducting business under the laws of the United States.
Nacion Fideicomisos' legal address is in central Buenos Aires and its website shows no indication of a presence in New York.
"The bill does not fit with the bond contracts," said Mario Negri, head of the opposition Radical civic Union party. (Additional reporting by Sarah Marsh; Editing by Toby Chopra, Sonya Hepinstall, Lisa Von Ahn and W Simon)