Argentina stocks drop on pension reform concerns

Bank shares and Argentine stocks plunged on reports that the government will move to take over $28.7 billion in private pension plans run by banks and insurance companies.

MerVal index slid 3.29 percent to close at 1,175.92 points, its lowest close since November 2004. Volume was strong at $30 million.

Banco Macro), with a 9 percent weighting on the MerVal, dropped 13.4 percent to 3.8 pesos per share while Grupo Financiero Galicia, which owns the country's biggest bank, plunged 15 percent to 0.935 peso per share.

"It should have been a day for the MerVal to recover. But a nationalization of pensions generates again all sorts of doubts about Argentina's future," said Jorge Alberti, an analyst with Elaccionista.com specialized website.

Due to risk aversion in the global financial crisis context, Argentina's sovereign bonds fell an average 1.7 percent in local trade led by a 4.3 percent fall in the Bonar 2013 bond.

"The market hasn't managed to convince investors, and any rise in prices is considered a good opportunity to sell," said a trader in the over-the-counter market.

Sources confirmed changes

Pension fund sources said, President Cristina Fernandez is soon to announce proposed changes to the Retirement and Pension Fund Administrators or know as AFJP. AFJP holds $28.7 billion in accounts for 9.5 million depositors.

Another source at a private pension fund said the government will propose nationalizing deposits in the funds.

The 10 AFJP are mostly owned by banks and insurance companies and are the biggest institutional investors in Argentina. The value of the funds' investments has fallen some 40 percent on average this year, as local stocks and bonds slumped.

The peso currency closed mixed against the U.S. dollar.

In informal trade between foreign exchange houses, as measured by Reuters, the peso firmed 0.91 percent to 3.2800/3.2850 per dollar as more dollars from exports entered the market and eased the weakening trend of much of the last two weeks.