UPDATE 6-Argentina to seize pension funds, markets tank

(Adds cabinet chief comment, background)

By Helen Popper

BUENOS AIRES, Oct 21 (Reuters) - Argentina's center-left President Cristina Fernandez on Tuesday signed a bill for a government takeover of the $30 billion private pension system in a daring and unexpected move that rocked domestic markets.

Labor leaders and lawmakers from the ruling Peronist party and some opposition groups applauded the nationalization as a way to guarantee pensions at a time of global market turmoil.

But the surprise move unnerved investors and sent Argentine stock and bond prices into freefall.

Critics said the government was looting pension funds ahead of a tough budget year when it has to find billions of dollars to pay and service debt, but the president said the private pension fund administrators were the looters.

"These were looting policies," Fernandez said of the private system in a ceremony at the government's National Social Security Administration, or ANSES, which will take over the pensions.

Congress, which is controlled by Fernandez allies, will debate the bill next week.

"The failed experiment" of private pensions is finished, ANSES Director Amado Boudou said at the ceremony with Fernandez, before hundreds of political supporters.

The reform took Argentina's 10 pension fund administrators, known as AFJPs, by surprise and an industry group decried government claims that the funds had performed badly.

"The AFJP system is a solid mechanism that can be perfected, that has had an almost constant growth trend in the 14 years of its existence," Sebastian Palla, president of the Union of Argentine Retirement and Pension administrators, said in a statement.

International banks and insurance groups BBVA (BBVA.MC), HSBC Holdings (HSBA.L), MetLife Inc (MET.N), and ING Groep NV (ING.AS) (ING.N) are among the companies that run the funds.

MARKETS SWOON

Earlier in the day, Argentina's benchmark MerVal stock index .MERV plunged 10.99 percent to a four-year low on news of the takeover of the country's biggest institutional investors.

"This is a major blow to the country's already isolated capital markets, with the negative implications of economic growth and investment this entails," wrote Latin America analyst Daniel Kerner of Eurasia Group consulting group.

Prices for Argentine's 2033 discount bond sank 4.56 points to a bid/ask of 32.063/34.313 ARGGLB33=RR, a level that implies a risk of default, as offers greatly outnumbered bids.