* Question of immunity for Argentina's central bank
* U.S. government says appeal by two investment funds should be denied
* Italian holders of Argentine bonds supported the appeal
By James Vicini
WASHINGTON, June 25 (Reuters) - The U.S. Supreme Court on Monday rejected an appeal by two U.S. investment funds that seek to seize $105 million of Argentina's central bank deposits in New York to satisfy their claims from the country's huge debt default a decade ago.
The justices let stand a ruling by a federal appeals court in New York that U.S. law shielded the property of a foreign central bank used for traditional central banking activities, regardless of whether the bank was independent from its parent state.
The appeals court ruled the $105 million must be unfrozen because of limits under a U.S. law, the Foreign Sovereign Immunities Act of 1976, on the ability of Argentina's creditors to freeze or seize assets. It ruled the central bank and Argentina did not waive its immunity.
The disputed deposits held at the U.S. Federal Reserve Bank in New York had been frozen since 2006. The case was part of the long-running litigation in New York over Argentina's $100 billion default.
The two funds, EM Ltd, which is controlled by investor Kenneth Dart, and NML Capital Ltd, which is an affiliate of the investment firm Elliott Management Corp, appealed to the Supreme Court.
The funds said the lower court ruling "threatens to disrupt financial markets" and is "critically important for billions of dollars in financial transactions that will occur in coming years."
The appeals court decision could have implications in the future for central banks in other countries, such as those in Europe in the event of a debt crisis, default and then similar litigation in New York.
Italian holders of Argentine bonds supported the appeal by the investment funds to the Supreme Court.
Argentina and its central bank urged the Supreme Court to reject the appeal and said there was no compelling reason for the justices to review the ruling.
U.S. government attorneys last month filed a brief with the Supreme Court opposing the appeal and saying the appeals court correctly ruled the central bank's funds were immune from being frozen and seized. The ruling did not conflict with any decision by the Supreme Court or any other appeals court, the government attorneys said.
The case marked the second attempt by the two creditors to freeze and seize U.S. dollar reserves of Argentina's central bank in New York after obtaining $2 billion in judgments over the past eight years.
The appeals court rejected an earlier effort in a ruling that turned on whether use of the reserves to repay the International Monetary Fund constituted commercial activity. The Supreme Court in 2007 refused to hear that case.
The Supreme Court denied the latest appeal without comment.
The Supreme Court case is EM Ltd v. Argentina, No. 11-604.