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UPDATE 1-Argentina says home heating gas prices to rise 28 pct to 40 pct

(Adds details on gas subsidies payment in paragraphs 8, 9, details on ethanol price hikes in paragraphs 10, 11)

BUENOS AIRES, March 28 (Reuters) - Argentine home heating gas bills will rise 28 percent to 40 percent starting in April, Energy and Mining Minister Juan Jose Aranguren told reporters on Wednesday, part of the government's effort to cut the fiscal deficit.

Under the previous administration, Argentines got generous utility subsidies that President Mauricio Macri, a free-markets advocate elected in late 2015, has gradually rolled back.

"The system had been subsidized in an irresponsible way," Aranguren said.

After years of being locked out of the international capital markets following Argentina's 2002 sovereign debt default, the government is trying to attract international investors in part by lowering the fiscal deficit to 3.2 percent of gross domestic product this year from 3.9 percent in 2017.

But bigger gas bills ahead could stoke consumer price increases, which are already among the highest in the world. Twelve-month inflation in Argentina was 25.4 percent in February compared to 25 percent the month before.

Argentina's central bank held its benchmark rate at 27.25 percent on Tuesday, saying indicators suggested core inflation would remain high in March.

In explaining its fourth consecutive decision to hold the seven-day interbank lending rate steady, the central bank said the pace of hikes in regulated prices for utilities and transportation would slow down after April.

Aranguren added that he would sign a resolution on Wednesday outlining the payment process for the $1.5 billion in subsidies the government owes to oil companies under a natural gas production incentive program, which has been plagued by payment delays.

The government will pay in 30 monthly installments beginning in January 2019, fully paying off the debts within two-and-a-half years.

Separately, the Energy Ministry announced increases in local ethanol prices on Wednesday. Corn-based ethanol prices will increase 10.5 percent immediately followed by another 7.96 percent increase at the beginning of April. Sugar-based ethanol prices will rise 7.5 percent now and 3.54 percent in April.

That means that at the beginning of April, corn-based ethanol will cost 13.16 pesos ($0.6534) per liter while sugar-based ethanol will cost 16.16 pesos per liter. Gasoline in Argentina is required to contain 12 percent ethanol.

($1 = 20.1400 Argentine pesos) (Reporting by Walter Bianchi and Luc Cohen Writing by Hugh Bronstein Editing by Bill Trott and Chizu Nomiyama)