UPDATE 1-Argentina asks Congress to reopen 2005 debt swap

(Adds details from text of bill)

BUENOS AIRES, Oct 26 (Reuters) - Argentina's government sent a bill to Congress on Monday seeking a green light for its plan to mop up some $20 billion in defaulted bonds, paving the way for a new debt issue to ease tight finances.

The proposed legislation would overturn the "Ley Cerrojo," or Bolt Law, which effectively sealed a 2005 debt deal from being reopened, and gives a second chance to investors who did not agree to the unfavorable conditions of that swap.

The bill is expected to be approved in coming weeks, according to congressional sources and local media reports.

Under the proposed law, which was distributed to reporters on Monday night, investors who want to enter a new swap must accept the same conditions or worse than in the 2005 restructure when Argentina paid investors some 30 cents on each dollar of defaulted debt.

The language of the bill contained no details about the terms of the swap.

Facing tight financing next year center-left President Cristina Fernandez seeks to place new debt on international markets. But first, the country must clean up fallout from a massive debt default eight years ago. For details, see [ID:nN2262445]

Argentina defaulted on $100 billion in 2001 and four years later former President Nestor Kirchner, Fernandez's husband and predecessor, offered investors a tough deal: take step losses or nothing.

At the time, about 75 percent of the investors took the offer and the rest decided to hold out for a better deal.

Some of those so-called holdouts sought full compensation through lawsuits against Argentina, which the government hopes to neutralize by reopening the 2005 debt swap and giving investors another chance to take the deal.

The proposed legislation bars the government from offering preferential terms to holdouts who have brought lawsuits.

The bill gives the government until the end of 2010 to complete the new debt restructuring. (Reporting by Vivianne Rodrigues; Editing by Fiona Ortiz,Carol Bishopric and Leslie Gevirtz)