BUENOS AIRES, July 31 (Reuters) - Argentina's peso currency rose against the dollar on Monday for the first time in two weeks, after the central bank intervened in the foreign exchange markets on Friday to halt the peso's rapid decline to historic lows.
The peso rose 0.86 percent on Monday to 17.65 per dollar, its sharpest single-day gain since April, after touching a record low of 17.80 per dollar on Friday. The rebound came after the central bank sold $305 million in reserves on Friday, its first sale in foreign exchange markets since June 2016.
The currency closed July down 5.8 percent. While government officials and the central bank have played down the risks of currency declines against the dollar, the recent drop's speed was out of line with fundamentals and could increase already high inflation, economists said.
"Even though they officially are comfortable with (the peso) getting weaker, they don't want to see it falling so rapidly," said Jeffrey Lamoureux, senior Latin America country risk analyst at BMI Research in New York.
President Mauricio Macri let the currency float shortly after taking office in December 2015, removing the controls that former populist President Cristina Fernandez put in place to prop up the peso and protect dwindling foreign reserves.
The central bank said in April it wanted to boost reserves, but it has been hampered by stubbornly high inflation and the sharp devaluation. Central bank President Federico Sturzenegger told reporters earlier this month that increasing reserves was still a goal but that there was no time line.
The peso had been stronger than expected earlier in the year, and remains below the expectation in the national budget for an average exchange rate of 17.92 per dollar for the year.
But with legislative elections approaching in October, in which Fernandez is likely to win a Senate seat, investors have taken profits and hedged portfolios with dollar-denominated assets. A primary vote for Congress, seen as a dry run, is two weeks away.
With the depreciation dominating headlines, the drop had the potential to become a "self-fulfilling prophecy" in a country where the public follows the exchange rate closely, said Federico Thomsen of Buenos Aires consultancy E.F. Thomsen.
"Argentines have always used the exchange rate as a barometer of trouble, and coming inflation," Thomsen said. "In a country where people look at it, and with the political noise around Cristina, it would be better if it was a little more gradual." (Additional reporting by Walter Bianchi; Editing by Peter Cooney)