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(Adds market and economic context, comments from government official)
By Hugh Bronstein
BUENOS AIRES, Aug 18 (Reuters) - A key part of Argentina's investor-friendly economic revamp was thrown into question on Thursday when the Supreme Court said that the government must hold public hearings before reducing home heating gas subsidies.
Elected in November on promises of lifting the heavy market controls favored by the previous administration, President Mauricio Macri slashed natural gas subsidies early in his term. As a consequence, heating bills during a particularly cold Southern Hemisphere winter soared, prompting public protests.
The spike in utility rates hit families already slammed by 40-percent inflation and a shrinking economy that has limited wage increases.
"The increase in utility prices cannot be validly implemented without public hearings on the issue," the court said in a unanimous decision.
Macri inherited a government nearly out of cash after eight years of free-spending populism under President Cristina Fernandez. He ditched currency and trade controls as part of his bid to draw investment to Latin America's No. 3 economy.
Households have paid rock bottom energy prices for years, thanks to generous subsidies that Macri says must be moderated as part of his bid to "normalize" the economy.
He was forced to backpedal last month after demonstrations by homeowners, some hit by energy price increases of 1,000 percent. Macri promised to cap increases at 400 percent. Now any change will have to take into account feedback from public hearings.
Macri's cabinet chief Marcos Pena told reporters the hearings would start in about three weeks. He said the government would hit its 2016 fiscal deficit target of 4.8 percent of gross domestic product despite higher-than-expected subsidy spending likely to result from the court ruling.
Gas rate increases of up to 500 percent that Macri has imposed on commercial users were unaffected by the decision.
Shares of Argentine energy companies took a hit after the court's decision was announced. Distributor Metrogas dropped 6.41 percent to 7.30 pesos ($0.49) per share, while gas transport company Tansener fell 3.17 percent to 6.40 pesos ($0.43) per share.
Argentina's gross domestic product is expected to shrink 1.5 percent this year and expand 3.2 percent in 2017, according to a recent central bank poll of analysts.
Macri forecasts next year's economic growth at about 3.5 percent. His government has not issued a GDP estimate for 2016. (Additional reporting by Jorge Otaola and Walter Bianchi; Editing by Dan Grebler and Alan Crosby)