* U.S. judge has ordered Argentina to pay holdout creditors
* Small investors stand to gain as well as "vulture funds"
* Ruling rekindles holdouts' hopes after long legal battle
By Guido Nejamkis and Helen Popper
BUENOS AIRES, Nov 29 (Reuters) - A decade after Argentina's debt default turned their savings to dust, a U.S. judge has rekindled the hopes of pensioners and other small investors fighting for full repayment alongside hedge funds.
U.S. District Judge Thomas Griesa ordered Argentina last week to deposit $1.33 billion to pay a group of so-called holdout creditors who refused to accept steep losses by swapping their bonds in restructurings in 2005 and 2010.
An appeals court gave Argentina a surprise reprieve on Wednesday by allowing it more time to fight the ruling but Griesa's payment order has stirred cautious optimism among some of the Argentine holdouts.
"It's the first time I've had any real hope that Argentina will sit down to negotiate in good faith. Our only option was the U.S. justice system," said Horacio Vazquez, a 56-year-old engineer who bought $70,000 worth of sovereign bonds in 2000 as economic storm-clouds started to gather.
Vazquez, who set up an association for Argentine bondholders affected by the 2002 default, won a payment judgment from Griesa in another case six years ago but has never received any money. He has no bonds in the current Griesa case.
Holdout creditors have won several billion dollars worth of judgments in U.S. courts but have collected almost nothing due to sovereign immunity laws. Argentina has said, however, that Griesa's latest order may open the floodgates for more lawsuits.
"The government's betting that we'll die trying (but) out of principle, after litigating for 10 years, I'm not going to accept the same amount of money as an investor who entered the swaps in 2010 and 2005," he said, drinking coffee and eating croissants in a Buenos Aires cafe.
The bondholders in the latest Griesa case are led by investment funds NML Capital Ltd and Aurelius Capital Management, who between them hold virtually all the claims.
But they also include 13 individual Argentine investors.
They are mostly pensioners, some in their 80s and 90s, and at least one of the plaintiffs has already died. They stand to receive a total of less than $1 million if Griesa's payment order is fulfilled, a source with knowledge of the case said on condition of anonymity.
These plaintiffs say they have little or nothing in common with "vulture funds" - the term President Cristina Fernandez uses to refer to investors who refused to enter the restructurings.
The fiery, left-leaning president calls them vultures because they often buy distressed or defaulted debt and then sue in the courts to get paid in full.
But some small investors say they unknowingly bought risky Argentine bonds at a time when better-informed investors were already dumping them.
"It annoys me that they want to demonize me when I'm nothing but a very elderly pensioner who trusted in bonds issued by this country," said one elderly woman from Buenos Aires who is among the Argentine plaintiffs.
"The vultures are the people running this country," she said, asking not to be named.
Two other plaintiffs, sisters aged 83 and 88, are too scared to talk publicly about their ordeal, a relative said. "What upsets them is that people think they're speculators rather than just pensioners."
Holdout creditors who refused to accept a "haircut" of about 70 cents on the dollar in the two debt exchanges still own roughly $11 billion in defaulted paper, according to private estimates.
That is equivalent to about a quarter of the Argentine central bank's foreign currency reserves, which Fernandez's government uses to service the public debt in the absence of fresh credit sources.
Partly because of the legal action by the holdouts, Argentina has yet to return to global credit markets almost 11 years since the economic meltdown of 2001/2002.
Fernandez vows not to pay the holdouts, but it is a risky approach. If Griesa's order that Argentina pay $1.33 billion to the holdouts is eventually upheld, U.S. courts could seize routine payments to those bondholders who accepted the earlier debt exchanges, putting Argentina into a technical default.
The judge's ruling last week was a blow to Fernandez's strategy to try to isolate the holdouts, but it gave an unexpected glimmer of hope to bondholders like Vazquez.
"The only thing we did was to save our money in Argentina in public bonds issued by Argentina," he said. "We're not vultures."