(New throughout, adds reaction from Argentine government)
By Nate Raymond and Jonathan Stempel
NEW YORK, April 7 (Reuters) - A U.S. court on Tuesday dismissed as premature Argentina’s appeal of a federal judge’s order finding the country in contempt for taking steps to evade his orders in a long-running dispute with hedge funds suing over defaulted debt.
U.S. District Judge Thomas Griesa last year ruled the South American country in contempt after he said it took “illegal” steps to sidestep his orders barring it from making interest payments on restructured debt until it settled with the funds.
The hedge funds, dubbed vultures by Argentina’s leftist government, argued the court could not hear an appeal until Griesa sanctions Argentina, something the Manhattan judge has yet to do. The 2nd U.S. Circuit Court of Appeals in New York agreed.
Argentina indicated it was prepared to take its case to an international court if Griesa took further measures against Latin America’s third biggest economy.
“If Judge Griesa decides in the future to take additional steps violating international rights, Argentina will retain its right to appeal them through the appropriate legal channels,” the Argentine economy ministry said in a statement.
Spokesmen for hedge funds including Elliott Management’s NML Capital Ltd and Aurelius Capital Management declined comment.
Argentina defaulted in July for the second time in 12 years after refusing to honor court orders to pay $1.33 billion plus interest to U.S. hedge funds suing for full payment on bonds following its earlier 2002 default.
The hedge funds spurned Argentina’s 2005 and 2010 debt restructurings, which resulted in about 92 percent its defaulted debt being swapped and investors being paid less than 30 cents on the dollar.
In September, Argentina enacted legislation allowing it to replace BNY Mellon as trustee for some bonds with a state affiliate and allow a swap of that debt for bonds payable in Argentina under its local laws.
Griesa, though, concluded those steps violated his orders and he held Argentina in contempt. Argentina appealed, calling the decision “unprecedented.”
Tuesday’s ruling came a day after Argentina appealed another ruling by Griesa blocking Citigroup Inc from processing payments on restructured bonds under Argentine law.
Citigroup’s subsequent disclosure that it would exit as custodian for those bonds prompted Argentina’s securities regulator to announce a local financial house would take over its local branch. (Additional reporting by Richard Lough in Buenos Aires; Editing by Chizu Nomiyama and David Gregorio)