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(Adds details from filing, nature of underlying dispute, case citation)
NEW YORK, March 17 (Reuters) - Citigroup Inc said on Tuesday it plans to exit its custodial business in Argentina as soon as possible, after a U.S. judge refused to lift an injunction that blocked the bank from processing interest payments on $2.3 billion of Argentina bonds.
In a letter to U.S. District Judge Thomas Griesa in Manhattan, Citigroup said it made its decision in light of his March 12 order letting the injunction stand, and Argentina's renewed threats to strip Citibank Argentina of its banking license and to impose criminal, civil and administrative sanctions.
Citigroup has not decided how to exit the custody business, but may sell portions or end some customer relationships, according to the letter from its lawyer, Karen Wagner.
Argentina's economy ministry had no immediate comment.
Citigroup's decision marks the latest fallout in a long-running U.S. court battle stemming from Argentina's roughly $100 billion sovereign debt default in 2001.
Most investors holding Argentina bonds later exchanged them for bonds worth much less, but a group of bondholders holdouts rejected the swaps.
The holdouts, including billionaire Paul Singer's Elliott Management LP hedge fund and its NML Capital affiliate, as well as the Aurelius Capital Management hedge fund, have insisted they be paid in full if holders of the exchanged bonds are paid.
Representatives for Elliott did not immediately respond to requests for comment. A spokesman for Aurelius had no immediate comment.
The case is NML Capital Ltd v. Argentina, U.S. District Court, Southern District of New York, No. 08-06978. (Reporting by Jonathan Stempel in New York; Editing by Jeffrey Benkoe)