UPDATE 3-Argentina court keeps freeze on govt reserve plan

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* Ruling marks new blow for president's debt fund plan

* Says Congress must help decide fate of ousted bank chief (Adds Redrado statement, bond close, analyst quote)

By Guido Nejamkis

BUENOS AIRES, Jan 22 (Reuters) - Argentina's president suffered a setback on Friday when a court upheld a freeze on her use of central bank funds to repay debt and said Congress must decide whether she was right to dismiss the bank's head.

President Cristina Fernandez's push to tap part of the country's $48 billion in foreign currency reserves has sparked legal challenges and political tension, rattling financial markets and raising concerns a bond swap could be delayed.

Fernandez removed central bank chief Martin Redrado by decree earlier this month because he opposed another decree to transfer $6.6 billion to the treasury. A judge reinstated Redrado a day later and also blocked the funds transfer.

"This is a great triumph for the opposition," said prominent deputy Elisa Carrio. "The central bank's reserves aren't going to be used to pay debt until Congress discusses these decrees."

Argentine bond prices have fallen since the turmoil erupted earlier this month, highlighting persistent political uncertainty in Latin America's No. 3 economy. The latest court ruling did not affect locally traded sovereign debt <AR/BONOS>, which closed down 0.9 percent on average.

Friday's ruling rejected a government appeal against the court decisions that blocked the reserves transfer and reinstated Redrado, urging Congress to take the lead in resolving the spiraling legal and political dispute.

The court ruling said the government cannot appoint a new president for the Central Bank until Congress has issued an opinion on Redrado's removal.

SETBACK

Redrado, who the government has accused of misconduct for refusing to hand over the foreign reserves funds, said the court decision vindicated him.

"(It) confirms that the president of the Central Bank did not fail to carry out the duties of a public official," a Central Bank statement said.

Fernandez asked lawmakers earlier this week to form a special advisory committee to discuss Redrado's firing, her first concession to opposition politicians who had called on her to summon Congress to debate the issue.

Argentina's Congress is not due to reconvene until March following the summer recess and ruling party lawmakers have rejected the opposition's calls, saying only the president has the power to summon Congress for a special session.

The special committee is expected to meet next week on Redrado's fate, but Fernandez has stressed that any recommendations it makes will be nonbinding.

Analysts said Friday's ruling was another blow to the president as her cash-strapped government seeks to shore up its finances before a presidential election next year in which her husband, former President Nestor Kirchner, is tipped to run.

"These decisions are a significant political blow for the Kirchner administration as the court system seems to have empowered Congress to be an active voice in this debate, which hitherto the Kirchner administration has been resisting," said Alberto Ramos, senior economist at Goldman Sachs.

Government ministers have said the turmoil at the Central Bank will have no effect on the planned swap of $20 billion in defaulted bonds, which the Argentine government is expected to launch in the next few weeks. (Writing by Helen Popper; Editing by Kenneth Barry)