Argentine peso sinks; stocks, bonds extend losses

(Updates to close, adds bonds)

BUENOS AIRES, Oct 7 (Reuters) - Argentina’s peso sank to its weakest in more than 5-1/2 years on Tuesday despite central bank vows to support the currency, while stocks and bonds extended Monday’s heavy losses.

In informal trade between foreign exchange houses, as measured by Reuters, the peso slid 2.39 percent to 3.315/3.320 per U.S. dollar ARSB=, its lowest point since January 2003. It has slipped 4.65 percent so far this year.

Traders said the demand for dollars was motivated by a flight to the comparative safety of the U.S. currency.

Argentines, accustomed to periodic financial crises, traditionally seek dollars when there are signs of trouble, and the financial crisis in the United States has not dented the perception of the dollar as a safe haven.

“The market is totally demanding dollars and the low liquidity of dollars is making the price (of dollars) rise,” said a foreign exchange trader, who asked not to be named.

“People don’t want any more risks,” said another trader.

In formal trade between banks ARS=RASL the peso closed down 0.63 percent at 3.215/3.2175 per dollar. The central bank intervenes in the interbank market to avoid abrupt movements in the value of the currency.

Central Bank President Martin Redrado said on Tuesday his central mission was to defend demand for pesos and sustain that demand through different policies.

He said that even though currencies in neighboring nations were weakening, Argentina would not follow that trend.

STOCKS, BONDS

On the stock market, the MerVal index of leading shares .MERV closed down 2.72 percent at 1,384.60 points, dragged down by losses in other regional markets. On Monday, the MerVal ended down 5.9 percent.

This week’s sell-off takes the MerVal’s losses to 35.65 percent since the start of the year.

Argentine bonds traded locally shed 2 percent on average in over-the-counter trade due to a fresh bout of selling riskier emerging-market assets, extending the average 6.5 percent loss racked up in the prior session.

Dollar-denominated Bonar 2011 bonds were among the hardest hit on, falling 4.5 percent according to the ask price.

Argentina's debt spreads over similar U.S. Treasuries widened 91 basis points to 1,252 on the JPMorgan Emerging Markets Bond Index Plus (EMBI+) 11EMJ. (Reporting by Walter Bianchi; Writing by Helen Popper; Editing by James Dalgleish)