UPDATE 2-Brazil Embraer to sell 20 jets to Argentine airline

* Embraer sells 20 jets to Argentine state airline

* Deliveries to start in first half of 2010

* Airline using Brazilian bank loan to buy aircraft (Adds Argentine president, financing details, background)

SAO PAULO, May 21 (Reuters) - Brazil's Embraer (EMBR3.SA) (ERJ.N) closed a deal to sell 20 planes to Argentina's recently nationalized flag carrier airline on Thursday even as the global slowdown hurts aircraft manufacturers.

Argentina's government signed the $700 million contract and the Brazilian company said the first of the Embraer 190 jets, which seat up to 114 people, would be delivered to Aerolineas Argentinas in the first half of 2010.

Brazil's state development bank BNDES is financing 85 percent of the purchase and the deal stipulates that future repairs on the aircraft must be carried out in Argentine workshops.

"The fact that after 16 years, Aerolineas Argentinas is buying new planes isn't just economic news, it's also about getting back some of our national pride," Argentine President Cristina Fernandez said in a speech to mark the signing.

In Sao Paulo, Embraer said the aircraft would be used by Austral, a subsidiary of Argentina's biggest airline Aerolineas Argentinas, which Fernandez nationalized last year.

The airlines, which have a debt-load of about $900 million, were plagued by strikes and cancellations before the state takeover. At the time, only 26 of their 85 aircraft were operating.

Earlier this year, Fernandez's center-left government said it would also buy 12 planes from U.S. manufacturer Boeing (BA.N).

Embraer's first-quarter profit sank 75 percent and the company has described the Argentine deal as an important contribution to its efforts to save jobs.

Embraer Chief Executive Frederico Curado said earlier this month a recovery of the commercial jet market was unlikely before 2011. (Reporting by Roberto Samora and Damian Wroclavsky in Buenos Aires; Writing by Helen Popper, editing Bernard Orr)