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UPDATE 3-US court rejects Argentina debt fix

* Argentina treated bondholders unequally -court

* Bondholders who did not join swaps deserve payment

* Decision could affect future sovereign restructurings

* Argentina bond prices fall

NEW YORK, Oct 26 (Reuters) - A U.S. appeals court said Argentina improperly discriminated against bondholders who refused to take part in two massive debt restructurings, setting back the country's efforts to recover from a roughly $100 billion default a decade ago.

The 2nd U.S. Circuit Court of Appeals in New York said on Friday that in conducting the restructurings in 2005 and 2010, Argentina decided improperly to pay holdout bondholders later than bondholders who agreed to participate. The court said this violated a bond provision that required it to treat bondholders equally.

Argentina bond prices tumbled. The decision could lessen Argentina's ability to repay creditors and further delay its return to world capital markets.

``There is no way a government can restructure its debt and be shielded from litigation, apart from exercising sovereign immunity,'' said Anna Gelpern, a law professor at American University in Washington, D.C., who specializes in international capital markets. ``Argentina's shield now seems to have a hole in it, and this ruling signals that every sovereign's shield could now have a hole in it.''

Friday's decision largely upheld injunctions issued in February by U.S. District Judge Thomas Griesa in Manhattan in favor of holdout bondholders, including Elliott Management Corp affiliate NML Capital Ltd and the Aurelius Capital Management funds, which owned $1.4 billion of defaulted debt.

It could also make it harder for countries, not just Argentina, to extricate themselves from sovereign debt crises and fend off angry creditors that may sue in U.S. courts.

In court papers, the U.S. government had warned that Griesa's ruling could undermine federal efforts to encourage consensual, global efforts to address sovereign debt crises.

Argentina, Aurelius, Elliott, their lawyers and the U.S. Department of Justice either declined to comment on the ruling or were not immediately available for comment.

COURT REJECTS ARGENTINA WARNINGS

Writing for a unanimous three-judge panel of the 2nd Circuit, Judge Barrington Parker said he had ``little difficulty'' in finding that Argentina breached its bond obligations, citing efforts by the country's officials and legislators to ensure that holders of restructured debt had priority.

Parker also rejected the contention that an adverse decision would wreak havoc. ``Nothing in the record supports Argentina's blanket assertion that the injunctions will plunge the republic into a new financial and economic crisis,'' he said.

Griesa was asked to clarify how the injunctions' payment formula is intended to work, and how the injunctions apply to third parties such as intermediary banks. The 2nd Circuit returned the case to his court to address those issues.

``The chance of a technical default increases, as this ruling is likely to severely impact the procedure by which Argentina services its post-default bonds,'' Boris Segura, an emerging markets bond analyst at Nomura Securities International Inc, wrote on Friday.

The price of Argentine global bonds maturing in 2017 fell 11 percent after the decision, declining to $89.90 in the Buenos Aires' over-the-counter market, according to Reuters data.

In oral arguments in July, a lawyer for Argentina had said that a ruling against the country could threaten the ability of other financially strapped countries -- he cited Greece, Ireland, Italy and Spain as examples -- to undergo debt restructurings.

Griesa has awarded several billion dollars to holdout creditors, but they have been largely unable to collect because of U.S. sovereign immunity laws.

The case is NML Capital Ltd et al v. Argentina, 2nd U.S. Circuit Court of Appeals, No. 12-105.