Funds to seize Argentine assets held in U.S.

* Hedge funds that sued over default poised to seize assets

* ADSs they will seize worth about $23 mln on market

* Order issued by U.S. district court in Manhattan

BUENOS AIRES, July 20 (Reuters) - Hedge funds that sued over Argentina’s massive sovereign debt default in 2002 will get their hands on some compensation for what is believed to be the first time in 10 years, federal court documents in New York showed.

Two “holdout” funds, NML Capital Ltd and EM Ltd, have won final judgments totaling several billion dollars during a decade of litigation over Argentina’s default. But neither of them had been able to seize Argentine funds in the United States since sovereign immunity laws protect most assets of foreign countries.

The U.S. district court in Manhattan ordered late on Thursday that the U.S. Marshal’s office execute an order to seize Argentine state assets, including cash deposits held by BH Option Trust and 9.09 million American depositary shares (ADS), each of which represents 10 Class D shares of Argentine bank Banco Hipotecario SA.

The market value of the ADSs, as of Thursday’s close, totaled just over $23 million at the official exchange rate for the Argentine peso. The ADSs will be publicly auctioned and the proceeds divided between NML Capital and EM.

Although the value of the assets to be seized represents a small fraction of what Argentina owes the hedge funds, it is a victory for the funds because it allows them to take control of Argentine assets after a decade-long effort. But it does not necessarily mean more such orders will follow, because each attempt to seize assets is weighed on its individual merits.

Lawyers and officials for the hedge funds and Argentina were not immediately available to comment on the court orders.

Argentina, Latin America’s No. 3 economy, defaulted on some $100 billion of sovereign debt at the height of a 2001-02 economic and political crisis - the biggest sovereign debt default in history.

The government restructured about 92 percent of the defaulted bonds in debt swaps carried out in 2005 and 2010. But holdout creditors like EM and NML Capital rejected the swaps and sued instead to recover the full value of the defaulted bonds.

Argentine officials shun what they call the “vulture funds” that buy distressed debt cheaply and then use the courts to try to force debtors to repay them in full. Argentina calls funds like EM and NML vulture funds.

Thursday’s court documents showed that EM -- which is controlled by investor Kenneth Dart -- won a final judgment in 2003 totaling $724.8 million plus accrued interest of $74.4 million through May 22, 2012.

Meanwhile, NML Capital, which is part of New York-based Elliott Management Corp, won a final judgment in 2006 for $284.2 million with accrued interest of $85.3 million.

On Monday, a U.S. appeals court in New York will hear oral arguments over whether a district court judge acted correctly when he ruled that Argentina may not make payments to bondholders who accepted the 2005 and 2010 debt swaps before it satisfies all obligations to hedge funds and others that declined to take part in the exchange offers.

Thursday’s orders related to the cases NML Capital Ltd v The Republic of Argentina and EM Ltd v The Republic of Argentina. (Additional reporting by Walter Bianchi in Buenos Aires; Editing by Martha Graybow and Steve Orlofsky)