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UPDATE 1-Argentina economic activity expands 2.8 pct in 2017 vs 2016

(Adds background on GDP warrants, prior forecasts)

BUENOS AIRES, Feb 28 (Reuters) - Argentina's economic activity expanded 2.8 percent in 2017 compared with the prior year, government statistics agency Indec said on Wednesday, marking a rebound from a biting recession in 2016.

In December 2017, economic activity was 2 percent higher than the same month the prior year, while activity expanded 0.6 percent compared with November 2017, the data showed. The monthly data is seen as a leading indicator of Argentina's quarterly gross domestic product (GDP) growth.

Indec is expected to publish fourth quarter and full-year 2017 GDP data on March 21. Full-year 2017 growth of less than 3 percent would mean Argentina would avoid a payment on growth-linked bonds known as GDP warrants this year, though final confirmation will come in late 2018 when GDP data is revised.

Last week, a government official said the economy had grown "close to 2.8 percent" in 2017 and was expected to grow 3.5 percent in 2018. But a severe drought in the Pampas grain belt could drastically reduce the size of Argentina's corn and soybean harvests, harming growth. (Reporting by Luc Cohen; Editing by Lisa Shumaker and Diane Craft)