UPDATE 4-U.S. judge calls Argentina debt swap plan 'illegal'
(Adds analysis about possibility of contempt finding)
By Nate Raymond and Joseph Ax
NEW YORK Aug 21 (Reuters) - U.S. District Judge Thomas Griesa on Thursday called Argentina's proposed debt restructuring plan "illegal" but stopped short of holding the country in contempt, saying that would not help resolve the dispute that led to the nation's second default in a dozen years.
Griesa said proposed legislation announced on Tuesday by President Cristina Fernandez would violate orders he imposed favoring creditors who refused to accept restructured bonds following the country's 2002 default on $100 billion in debt.
"It is illegal, and the court directs that it cannot be carried out," Griesa said at a hearing in New York.
But the judge declined to hold Argentina in contempt despite the urging of the two leading holdout creditors, saying such a finding would not "add anything to the scales" to encourage a settlement.
Argentina missed a June interest payment after Griesa blocked payments owed to holders of debt issued under U.S. law that was restructured in 2005 and 2010.
Fernandez, steadfast in her refusal to pay the hedge funds face value on their bonds, this week sent to the Argentine Congress a bill that would allow her government to resume payment to holders of exchanged bonds in defiance of Griesa's court.
The proposal prompted lawyers for Elliott Management Corp's NML Capital Ltd and Aurelius Capital Management, the leading bondholders suing for payment after not participating in the country's restructurings, to seek a contempt finding. Continuación...