Argentina's peso currency snapped its slide on Monday as the central bank announced it will hike reserve requirements for banks by 5 percentage points and in a move expected to soak up some 100 billion ARS ($3.63 billion) from the financial system.
In the first series of measures announced under new Governor Luis Caputo, the bank said it would raise requirements by 3 percentage points on June 21 and another 2 percentage points on July 18. Banks are currently required to keep 20 percent of their deposits in reserves.
Caputo replaced Federico Sturzenegger last week as the peso plunged toward record lows.
The peso rose 2.7 percent to close at 27.70 per U.S. dollar as the country awaited the first disbursement of a $50 billion credit line from the International Monetary Fund.
The central bank also said it planned to sell up to $400 million in reserves through auctions following the market close on Monday and Tuesday.
Bank stocks tumbled on the reserve requirement announcement, with Grupo Supervielle SA down 10.1 percent at 75 pesos and Banco Macro SA down 10.7 percent at 165 pesos as of 3:50 p.m. (1550 GMT).
In its statement, the central bank said it will lower a cap on banks' foreign currency holdings to 5 percent from 10 percent of total assets.
However, it said banks will be able to get around that limit and hold up to 30 percent of their assets in foreign currency if most of those holdings are dollar-denominated Treasury notes. The monetary authority said that will make it easier for banks to buy those notes in the secondary market.
Banks' poor performances weighed on the Merval stock index , which was down 6.7 percent. Traders said stocks were also pressured by speculation that index provider MSCI would not upgrade Argentina to its emerging markets category later this week, as many have hoped.
Energy and utilities stocks also fell after Energy Minister Juan Jose Aranguren left his post over the weekend, while a trade spat between the United States and China weighed heavily across emerging markets on Monday.
Argentina's country risk - a measure of the spread between its bond yields and safer alternatives - rose 16 points on Monday to 567, a sharper increase than most other emerging markets. ($1 = 27.5600 Argentine pesos) (Reporting by Walter Bianchi and Luc Cohen Editing by David Gregorio and Marguerita Choy)