Oct. 22 (Bloomberg) -- Argentine lawmakers will try to block the government's use of $29 billion in nationalized pension assets to repay debt when they consider President Cristina Fernandez de Kirchner's plan to seize the funds from private money managers.

Opposition deputies said the legislation probably will pass, and the debate will focus on limiting the way the government uses and invests the money.

Speculation that Fernandez intends to use the money to finance the government has roiled Argentina's markets. Stocks had their biggest two-day drop since 1990 and dollar bond yields topped 30 percent on concern the pension takeover is a prelude to the country's second default this decade.

``The government is trying to avoid having to pay interest on bonds and they want to find more money for public works,'' Esteban Bullrich, a congressman of the opposition Pro Party, said in a telephone interview in Buenos Aires. ``We see this plan as illegal.''

Congress will seek to curb the president's control of the panel that oversees the pension system by giving a majority of the seats to opposition parties, workers and retirees, said opposition Senator Gerardo Morales, head of the social security committee. He also said he wants congress to repeal the so-called ``superpowers'' given the president to spend excess revenue without lawmakers' approval.

`Grab the Cash'

Fernandez, 55, announced her plan to take over 10 private pension funds during a speech in Buenos Aires yesterday. She said the proposal would protect retirees from the global financial crisis and denied trying to ``grab the cash'' to pay off debt or finance new programs or projects. The last time Argentina sought to tap workers' savings was in 2001, just before it halted payments on $95 billion of bonds.

Stocks, bonds and the currency have plunged since Oct. 20 on concern the proposed pension takeover is aimed at meeting financing needs that have swelled as prices for the country's commodity exports tumbled, eroding tax revenue.

Argentina hasn't had access to international debt markets since its 2001 default and demand for its peso bonds has dried up on concern the government is underreporting the rise in consumer prices.

Rescue

Fernandez described the takeover as a ``rescue'' for 9 million Argentines who maintain individual accounts managed by banks including London-based HSBC Holdings Plc and Spain-based Banco Bilbao Vizcaya Argentaria SA. The funds lost 2.25 percent in September from a year earlier. The private funds invested an average of 55 percent of their funds in bonds and 11 percent in stocks as of September, according Web site of the pension fund regulator.

Government spending rose 40 percent to 19.8 billion pesos in August from a year earlier. Tax revenue rose 36 percent to 24.2 billion pesos over the same period. Argentina's borrowing needs will swell to as much as $14 billion next year from $7 billion in 2008, RBC Capital Markets a Toronto-based unit of Canada's largest bank, said yesterday, spurred in part by the need to refinance maturing debt.

Fernandez is counting on her majority coalition in congress to pass the measure, and sought to expand support by saying she wants a committee of lawmakers to help oversee the funds' management. The coalition built by Fernandez and her husband, former President Nestor Kirchner, weakened this year as congress refused to back her in raising export taxes on agricultural goods and held up plans to nationalize the country's biggest airline.

Economists such as Javier Kulesz at UBS Pactual in Buenos Aires said the plan will allow the government to tap $4.5 billion in annual contributions to help close a financing gap of about $11 billion next year. An additional $3.5 billion may be saved in interest and amortizations that the government owed the pension funds next year.

The benchmark Merval stock index tumbled as much as 18 percent. Yields on Argentina's 8.28 percent bonds due in 2033 surged 4.64 percentage points to 29.33 percent after earlier climbing to 30 percent, according to JPMorgan Chase & Co. The bonds yielded 12.16 percent a month ago.

To contact the reporters on this story: Bill Faries in Buenos Aires at wfaries@bloomberg.net; Eliana Raszewski in Buenos Aires eraszewski@bloomberg.net

Last Updated: October 22, 2008 18:28 EDT