ARGENTINA said Tuesday it would meet with a mediator for the second time this week in the country’s dispute with “holdout” investors, lifting market hopes for a deal needed to avoid another painful debt default.

    With the economy already in recession, President Cristina Fernandez’s cash-strapped government has until July 30 to reach an agreement with hedge funds who refused to participate in the country’s earlier debt restructuring and have been suing for full repayment of sovereign bonds that Argentina defaulted on in 2002.

    On Argentina’s local over-the-counter market, benchmark Discount bonds rose 1.60 percent to 88.65 while Par bonds were up 1.32 percent to 49.90. Traders cited optimism over the talks as the reason for the climb.

    Argentina’s Cabinet chief Jorge Capitanich did not say whether the holdout funds led by Elliott Management Corp. and Aurelius Capital Management would participate in Friday’s meeting. There was no immediate comment from the funds.

    Other holdout investors with over US$6 billion worth of unrestructured Argentine debt have started organizing negotiating committees, encouraged by Buenos Aires’ stated desire to settle with 100 percent of its creditors.

    The government has said that settling with funds led by Elliott would carry the risk of opening Argentina to a slew of suits from other holdouts.

    On Monday, Argentina’s Economy Minister Axel Kicillof spent four hours discussing the case in New York with the mediator, Daniel Pollack, who was appointed by U.S. District Judge Thomas Griesa to find common ground in the years-long dispute.

    “It was agreed to continue this meeting Friday,” Capitanich said. “It has been an intense dialogue.”

    Kicillof flew back to Buenos Aires on Tuesday and described the session with Pollack as “an important advance.” (SD-Agencies)