(Adds details on Albright firm's role)
By Nate Raymond
NEW YORK, Sept 19 (Reuters) - A U.S. appeals court on Friday dismissed an appeal by Citigroup Inc and Argentina of a judge's order blocking the bank from processing payments on $8.4 billion in bonds issued under the country's local laws following its 2002 default.
The 2nd U.S. Circuit Court of Appeals in New York, in a brief order, declined to find it had jurisdiction because the order Citigroup and Argentina appealed was a "clarification, not a modification" of a prior decision by U.S. District Judge Thomas Griesa.
But the appellate court, ruling a day after hearing the appeal, said nothing in its decision was intended to prevent Citigroup from seeking further relief from Griesa.
Karen Wagner, Citigroup's lawyer, told the appeals court on Thursday that the bank faces regulatory and criminal sanctions by Argentina, which defaulted again in July, if it cannot process the $5 million payment by Sept. 30.
A Citigroup spokeswoman had no immediate comment. A U.S. lawyer for Argentina did not respond to a request for comment, while a spokesman for a lead bondholder plaintiff, Elliott Management's NML Capital Ltd, declined to comment.
Argentina defaulted in July after refusing to honor court orders to pay $1.33 billion plus interest to bondholders suing for full payment on defaulted bonds.
The hedge funds, led by NML and Aurelius Capital Management, had spurned the country's 2005 and 2010 debt restructurings, which resulted in exchanges for about 92 percent of the country's defaulted debt. Investors who exchanged bonds were paid less than 30 cents on the dollar.
The country's most recent default came after the U.S. Supreme Court declined to hear Argentina's appeal of a ruling that it must pay the holdouts when it paid holders of the exchanged bonds.
Griesa subsequently blocked Bank of New York Mellon Corp from processing a $539 million interest payment on what the country says is over $28 billion in debt.
The order sent Argentina on a course to default after no settlement was reached.
Amid the litigation, Citigroup sought assurances it could process payments it received from Argentina on bonds issued under Argentine law. But Griesa on July 28 blocked Citi from processing payments on U.S. dollar-denominated bonds issued under Argentine law.
Last week, Argentina's Congress passed a bill intended to allow the government to make payments on about $29 billion in foreign-held bonds either in Argentina or elsewhere out of U.S. jurisdiction.
Daniel Pollack, a court-appointed mediator, said Friday he would "anticipate conducting a continuing effort to find a negotiated resolution to this dispute."
Consultants with Albright Stonebridge Group, co-chaired by former U.S. Commerce Secretary Carlos Gutierrez, separately have met with Argentine officials on behalf of bondholders in hopes of finding "a mutually acceptable resolution," said spokesman Ben Chang.
He declined to say which bondholders the firm represented and whether they held defaulted or exchanged bonds. (Reporting by Nate Raymond in New York; additional reporting by Jonathan Stempel and David Henry; Editing by Meredith Mazzilli, Andrew Hay and Dan Grebler)