(Adds quotes from Argentine president's speech)
By Lawrence Hurley and Sarah Marsh
WASHINGTON/BUENOS AIRES, June 16 President Cristina Fernandez vowed on Monday to find a way to service Argentina's restructured debt despite suffering a major setback in a long legal battle against "holdout" investors that pushed the country closer to a new default.
Hours after the U.S. Supreme Court refused to hear an Argentine appeal aimed at staving off a default, a defiant Fernandez slammed U.S. courts for repeatedly ruling against her government.
She also said Argentina was the victim of "extortion" by holdouts who refused to join debt restructuring deals since the catastrophic 2001-02 default on $100 billion of sovereign debt.
But Fernandez said she was still open to negotiations and insisted she would continue to pay the more than 90 percent of creditors who accepted a renegotiation of the defaulted debt.
"Argentina will fulfill its obligations and it will not default on its restructured debt," she said in a televised speech.
She gave no details on how it would manage that, however, saying only that she had told her economy minister to set up "all the tools needed to make the payment to those who trusted in Argentina."
The Supreme Court's unexpected refusal to hear Argentina's appeal left intact lower court rulings that ordered it to pay holdout hedge funds $1.33 billion.
Argentina has so far refused to pay the holdout investors unless they also agree to a restructuring of the debt.
If it sticks to that position, U.S. District Judge Thomas Griesa could prevent payment to exchange bondholders even though the country is able and willing to service that debt.
That could result in a default by June 30, when payments are due on discount bonds under U.S. jurisdiction.
Fernandez calls the hedge funds "vultures" and says that agreeing to pay them on their terms would lead to claims from other holdouts on about $15 billion of debt -- equivalent to more than half the foreign currency reserves held by Argentina's central bank.
"Argentina has shown it is willing to negotiate, but it does not have to submit itself to such extortion," Fernandez said.
She insisted Argentina cannot give holdouts preferential treatment over exchange bondholders after many of them bought the debt at a massive discount and are claiming payback in full.
Argentine stocks and bonds fell sharply on Monday because investors had expected the Supreme Court to delay a decision on the appeal, giving Fernandez time to negotiate with holdouts or restructure its exchange bonds outside of U.S. jurisdiction.
"It's a very damaging scenario for Argentina," said Marco Lavagna at Ecolatina consultancy, noting that how lower courts implemented their rulings was key. "Maybe something could open up there and allow for negotiation."
Argentina has hinted it might consider negotiating with holdouts but could not do so until after December 31 when a clause in its debt swaps prohibiting it from offering holdouts better terms expires.
Whether Argentina can keep stalling investors and U.S. courts until that date remains to be seen.
Fernandez said on Monday her government would welcome it if holdouts agreed to join its debt swaps.
The Supreme Court decision hurts Argentina's efforts to normalize relations with foreign investors and creditors in order to regain access to international funds.
The holdout investors fighting the legal battle are led by hedge funds Aurelius Capital Management and NML Capital Ltd, a unit of billionaire Paul Singer's Elliott Management Corp.
More than 90 percent of the debt was renegotiated in two debt swaps in 2005 and 2010 with investors accepting between 25 and 29 cents on the dollar.
The International Monetary Fund has said it is worried that the rulings against Argentina could make it more difficult for other countries to restructure their debt and put financial calamity behind them.
"This is surprising because it is giving a precedent for any 'vulture fund' to go against any country, so any country is vulnerable in a restructure," said Sebastian Centurion at ABC Exchange.
But others say collective action clauses now broadly used in sovereign debt issuance should prevent Argentina's case becoming a precedent and there was little reaction in other emerging markets to the Supreme Court decision.
In another blow to Argentina, the Supreme Court also ruled that creditors can seek information about Argentina's non-U.S. assets in a case about bank subpoenas.
The question was whether NML could enforce subpoenas against Bank of America and Banco de la Nacion Argentina. The court's ruling may nonetheless have limited impact in part because of Argentina's limited assets around the world.
NML has in the past pursued Argentine assets aggressively in its fight to get full repayment for its bonds, even seizing an Argentine navy ship in Ghana in 2012. (Additional reporting by Daniel Bases in New York and Alejandro Lifschitz and Eliana Raszewski in Buenos Aires; Editing by Andrew Hay and Kieran Murray)