Emerging debt-Argentina falls on tough talk, Mexican peso rises

*Argentine assets hurt by President's tough talk

*U.S. rate decision Tuesday keeps trading light

*Mexican peso reaches six-year high.

By Daniel Bases

NEW YORK, Aug 4 (Reuters) - Investors bailed out of Argentine assets on Monday in response to tough talking President Cristina Fernandez who defended her government's actions over a now defeated agricultural tax and inflation statistics.

Argentina was the biggest loser in the emerging market sphere, underperforming on stocks, bonds and credit default swaps. The sector started on a weak note with declines in Asian stock indexes that migrated across the time zones and left Latin American stocks shaken.

Adding to the sour mood was higher-than-expected U.S. core inflation data that put some selling pressure on U.S. stocks and Treasuries, thereby undermining emerging market credits.

Tuesday's U.S. interest rate policy meeting was blamed for the light trading volumes. The Federal Reserve is expected to leave benchmark interest rates unchanged at 2.0 percent as it grapples with a faltering economy, shaky financial system and rising prices.

However a decline in oil prices relieved some of the selling pressure in afternoon New York trade.

The Morgan Stanley Capital International emerging markets stock index .MSCIEF fell 1.98 percent while the Latin American index .MILA00000PUS fell 3.53 percent.

Argentina's Merval index .MERV lost roughly 3.78 percent to a near one-year low around 1,812.75.

Fernandez, who was forced to ditch a controversial tax increase on soy exports, said her only mistake was to underestimate the opposition to her tax plan and that if given the chance she would not have changed her actions.

She also defended government inflation statistics, widely discredited, which puts the consumer price index up about 9.0 percent a year versus private estimates of 20 percent or more.

"Investors seem to be showing concern about the fact that the president didn't show any sign in reforming or changing the INDEC and her assertion that she would have handled the tax issue in the same way if she had the chance. That's got people nervous again," said Benito Berber, Latin America strategist at RBS in Stamford, Connecticut.

In the credit markets, Argentina's five-year credit default swaps illustrated investor fears that the political environment remains tense and the government recalcitrant in light of its defeat on the tax issue.