* Judge says Argentina cannot evade court orders
* Says holdouts must be paid for debt in default
* Courts are 'not helpless' to enforce rulings
* Griesa aims to rule quickly, appeals court will review
By Nate Raymond
NEW YORK, Nov 9 (Reuters) - A U.S. judge told Argentina on Friday it should not even consider evading a recent ruling requiring it to pay bondholders who did not participate in two major debt restructurings after the country's 2002 default.
U.S. District Judge Thomas Griesa in Manhattan said Argentina must not seek to avoid making payments to the holdout bondholders in accordance with an Oct. 26 ruling from the 2nd U.S. Circuit Court of Appeals.
"If, and I emphasize if, there is any thought on the part of the Republic to defy and evade the current ruling, then that thought should be seriously reconsidered and set aside," Griesa told Argentina's lawyers.
Griesa's comments came in response to remarks by Argentine President Cristina Fernandez de Kirchner, who said the country would not pay "one dollar to the 'vulture funds'."
The holdouts include Elliott Management Corp affiliate NML Capital Ltd and the Aurelius Capital Management funds. They are suing to recoup $1.4 billion of defaulted debt.
Griesa also said he would move to quickly resolve questions regarding how the payments will be made by Dec. 2, when Argentina is due to make the first of three payments totaling more than $3 billion to bondholders.
The biggest payout will come Dec. 15 when Argentina has to pay holders of its growth-linked GDP warrants, issued during its harsh 2005 and 2010 debt swaps.
Friday's hearing was the latest development in an array of U.S. litigation stemming from the country's sovereign default.
The 2nd Circuit ruled that Argentina had improperly discriminated against bondholders who did not participate in the country's debt swaps. About 93 percent of creditors entered the swaps, exchanging their defaulted debt for new bonds.
The appeals court said Argentina had violated bond provisions requiring it to treat bondholders equally by paying those who did participate in the restructurings ahead of the holdouts.
The ruling sent Argentine bond prices reeling and prompted a sovereign debt downgrade by Standard & Poor's.
Griesa's hard-line stance on Friday further widened the country's risk spread as measured by JPMorgan's EMBI+ bond index and sent the price of protection against an Argentine default surging once again.
Following the appeals court ruling, NML Capital asked Griesa in a Nov. 6 letter to rule quickly on two issues that the 2nd Circuit sent back to the trial judge to determine.
Among those issues was how the bond payment formula would operate. It also asked the judge to determine how the injunction would apply to third parties, including intermediary banks. The 2nd Circuit will review Griesa's ruling.
COURTS 'NOT HELPLESS'
NML's letter cited remarks by the president and Economy Minister Hernan Lorenzino stating they would not pay the holdout creditors. The officials also vowed to continue servicing the country's restructured debt.
Those statements prompted a lengthy rebuttal from Griesa on Friday. The judge said any move by Argentina to alter the payment mechanisms for the bonds to skirt the 2nd Circuit ruling would violate a court order from February.
"There cannot be a payment to exchange bondholders without a court ordered payment to the plaintiffs," Griesa said.
Argentina has systematically fought every court decision in favor of the holdouts and refused to pay several billion dollars in court-awarded damages owed to them. Creditors have been largely unable to collect on the judgments since most Argentine assets are protected by U.S. sovereign immunity laws.
Griesa grilled Argentina's lawyer, Carmine Boccuzzi, on whether Argentina's leaders were moving to defy the court order.
He ordered that Argentina submit an affidavit attesting that it would comply with the February order. He added that "steps can be taken to sanction the Republic."
"Our courts are not helpless," he said.
Boccuzzi told the judge that Argentina had complied with the February order and had not made any changes to the way bondholders were paid.
"They are not thumbing their nose at your honor," he said.
At the urging of NML, Griesa scheduled a quick timetable to resolve the questions posed by the 2nd Circuit, with briefing scheduled for completion by mid-November.
He said he intends to rule before the Dec. 2 payment so the holdout bondholders have a chance to get a cut. A stay on payments to NML and the other bondholders remains in place at least until he issues a ruling, he said.
"They have been waiting for years to get some money," he said. "And they're going to get something."
Argentine Finance Secretary Adrian Cosentino celebrated the fact that Griesa kept the original payment orders on hold, despite a request by NML to allow them to move forward.
"Judge Griesa confirmed that the 'status quo' is still in effect and ratified the stay until this (broader) issue is definitively resolved," Cosentino told state news agency Telam.
He also emphasized that the judge allowed representatives of the holders of restructured bonds, as well as intermediary banks such as the Bank of New York, to weigh in on the dispute.
The case is NML Capital Ltd et al v. Argentina, U.S. District Court, Southern District of New York, No. 08-06978.