(Recasts with bondholder's motion)
By Daniel Bases and Jorge Otaola
NEW YORK/BUENOS AIRES, July 29 (Reuters) - Holders of Argentina's euro-denominated exchange bonds urged a U.S. judge on Tuesday to suspend a debt ruling in favor of holdout investors suing the country that risks toppling Latin America's No. 3 economy into default.
The countdown clock is ticking. Argentina has until the end of Wednesday to either fulfill a ruling by U.S. District Judge Thomas Griesa to pay hedge funds that rejected its restructuring in full on their defaulted bonds, cut a deal or obtain a stay.
If not, Griesa will prevent Argentina from making the July 30 deadline for a coupon payment on bonds exchanged in its 2005 and 2010 debt swaps.
Argentine debt negotiators met on Tuesday in New York with a court-appointed mediator for extensive negotiations in an attempt to cut a deal to avoid what is being called a "Griefault" on social media.
"This Court can facilitate a settlement - and avoid a potential default - by issuing a temporary stay," the bondholders said in a memorandum of law justifying their motion.
Griesa previously rejected Argentina's request for a stay but could respond differently to bondholders.
"A stay will promote and encourage a global settlement. A stay will not prejudice the plaintiffs," the bondholders said.
The news helped lift Argentine equities on Tuesday. The MerVal stock index closed 6.5 percent up.
The euro bondholders also said they would facilitate a deal by waiving the so-called RUFO clause that prevents Argentina from offering other investors better terms than it offered them.
They would also try to get holders of exchange bonds under other legislations to waive the clause. "Obtaining a waiver of the RUFO clause, however, will take time," they said.
A default would hurt Argentina, which is already in recession and grappling with dwindling foreign reserves and soaring inflation.
Yet it would unlikely prompt broader market repercussions given the country's relative isolation from the financial system, the head of the International Monetary Fund, Christine Lagarde, said on Tuesday.
Argentina has been cut off from international credit markets since its 2002 default on $100 billion, which plunged millions of Argentines into poverty.
For many years, the country declined to negotiate with the holdouts who bought its distressed debt on the cheap, slamming them as "vultures" picking over the carcass of its default.
Argentina sent a delegation of technical, financial and legal representatives to meet court-appointed mediator Daniel Pollack at his New York office on Tuesday, rather than Economy Minister Axel Kicillof, who sealed a number of deals with foreign investors and creditors in past months.
Kicillof was attending a meeting of the South American trade bloc Mercosur in Caracas with President Cristina Fernandez.
A report by state-run news agency Telam that the debt negotiations had broken up and would resume in a couple of hours raised hopes that some plan for a deal may be underfoot.
Jonathan Blackman, a lawyer for Argentina, was seen by a Reuters witness entering Pollack's offices late on Tuesday.
Over past days, a default had been looking increasingly likely. Argentina's debt insurance costs hit six-week highs on Tuesday.
Argentina's dollar-denominated Par bonds rose strongly on Tuesday on the over-the-counter market as investors who expected bondholders could accelerate the series in the case of a default and call for immediate payment piled into the paper.
"If there is a default, and given the Par is the cheapest series, they are acquiring these bonds," said Roberto Drimer at the local consultancy VatNet.
Par bonds closed up 2.3 percent at $51.05 while Discount bonds were down 1.2 percent to $82.55. (Additional reporting by Svea Herbst-Bayliss in Boston and Jonathan Stempel in New York; Writing by Sarah Marsh in Buenos Aires; Editing by Leslie Adler)