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By Nate Raymond and Hilary Burke
Nov 13 (Reuters) - Argentina filed a petition for a rehearing with a U.S. appeals court on Tuesday over a debt ruling that would force the country to pay holdout creditors owning bonds in default since 2002.
The court filing said Argentina is seeking a rehearing with the three-judge panel that ruled in favor of the holdouts last month, as well as with the entire U.S. Court of Appeals for the Second Circuit.
Argentina in its brief said the earlier appellate ruling last month interpreted a "boilerplate" provision underlying trillions of dollars in debt in a way that was "inconsistent with market understanding."
If left in place, the 2nd Circuit's initial ruling "will exacerbate future sovereign debt crises by making voluntary debt restructuring essentially impossible," Argentina argued in the brief.
The petition marked the latest development in an escalating standoff between Argentina and bondholders including Elliott Management Corp affiliate NML Capital Ltd and the Aurelius Capital Management funds.
These creditors refused to participate in restructurings of Argentina's debt in 2005 and 2010. They are suing to recoup $1.4 billion of defaulted debt.
After years of litigation seeking payment on the bonds, the holdouts scored a major victory when the 2nd Circuit ruled that Argentina had improperly discriminated against them by paying bondholders who entered the 2005 and 2010 debt swaps sooner.
The ruling caused Argentina's bond prices to tumble and prompted Standard & Poor's to downgrade its sovereign debt rating.
The 2nd Circuit has sent the case back to U.S. District Court Judge Thomas Griesa in Manhattan to resolve questions about how Argentina would go about paying the holdouts.
At a hearing Friday, Griesa said he intended to rule before Dec. 2, when Argentina is scheduled to make the first of three interest payments on the exchange bonds, which will total more than $3 billion over the course of the month.
The ruling has raised concerns not only for Argentina but also holders of over 91 percent of Argentina's defaulted debt who participated in the earlier restructurings.
Sean O'Shea, lawyer for exchange bond holder Gramercy Funds Management, said at Friday's court hearing that his client was "being held hostage."
Gramercy has now also retained prominent New York litigator David Boies and his law firm Boies, Schiller & Flexner LLP to represent it, law firm spokeswoman Dawn Schneider said in a statement Tuesday.
Boies gained national attention for representing former Vice President Al Gore during the Gore v. Bush case before the U.S. Supreme Court in 2000.
Peter Truell, a spokesman for Elliott, declined to comment on Argentina's rehearing petition. Melissa McNamara, a spokeswoman for Aurelius, declined comment.
The case is NML Capital Ltd et al v. Argentina, 2nd U.S. Circuit Court of Appeals, No. 12-105.