October 6, 2012 / 1:35 PM / 5 years ago

Argentine province pays dollar bonds in pesos -media

* La Nacion daily says Chaco province can't get dollars

* Government currency controls dampen investment

BUENOS AIRES, Oct 6 (Reuters) - Chaco province in northern Argentina surprised the local capital markets this week when it made more than $263,000 dollar-denominated bond service payments in local pesos rather than in U.S. currency, La Nacion newspaper reported on Saturday.

The government of Argentina has cracked down on access to dollars this year in a bid to halt capital flight as the local currency depreciates against the dollar.

The Chaco dollar-denominated bonds were issued in 2006 and come due in 2015 and 2023. But the debt payments could not be made in the designated currency because the province could not get its hands on dollars, La Nacion said, citing market sources.

"This leaves the door open to the possible forced pesification of other securities denominated in foreign currency," La Nacion said.

Argentina is a major world grains supplier. Rising soy, corn and wheat prices have helped the South American country recover from a severe 2001-2002 financial crisis.

But the economy has cooled quickly this year due to sluggish global growth, high inflation, reduced grains output caused by a December-January drought, and sinking business confidence as the de facto ban on dollar buying dampens investment and hurts consumer confidence.

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