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Defiant Argentine leader vows deeper market intervention

By Hugh Bronstein

BUENOS AIRES (Reuters) - Argentine leader Cristina Fernandez, defiant after her party's midterm primary election defeat, vowed on Wednesday to deepen the interventionist policies that have delivered economic growth during her six years in power at the cost of high inflation.

"We are the future," the 60-year-old president shouted to an audience of chanting, flag-waving supporters in her first major address after Sunday's open primary, in which her coalition captured only 26 percent of the nationwide vote. In the primary, voters chose the candidates who will run in the midterm congressional election in October.

Under Fernandez, who was first elected in 2007, protectionist trade policies, currency controls and heavy regulation of the country's key grains sector have helped make Argentina an outcast of the international markets.

After her speech, the local peso currency weakened on the black market as her comments sparked buying of U.S. dollars. Argentine asset prices got a short-lived boost early in the week due to the president's poor showing in the primary, which was seen widely as a referendum on Fernandez's rule.

The result crushed speculation that her supporters in Congress would try to amend the constitution to allow her to run for a third term in 2015.

Fernandez has nationalized Argentina's private pension fund system as well as the country's main oil company YPF. She has erected import barriers and imposed heavy controls meant to stop capital flight and to support the anemic peso.

"To have a future we must deepen these policies," she said, pumping her fists in the air, dancing to the music that played following her speech in Buenos Aires and holding up a flag emblazoned with the word Evita, populist icon and late first lady of Argentina with whom Fernandez is often compared.

MUST-WIN BUENOS AIRES

In the affluent Buenos Aires suburb of Tigre, her hand-picked candidate in the primary lost to Sergio Massa, the town's 41-year-old mayor. A former Fernandez ally and fellow member of the umbrella Peronist party, Massa is seen as a possible business-friendly presidential candidate two years from now.

Massa's victory on Sunday was key as Buenos Aires province contains 40 percent of Argentina's electorate.

Like Evita, Fernandez has put helping the poor at the top of her agenda. But generous welfare and other state subsidies in the run-up to the October midterms have also fueled inflation, clocked by private economists at more than 20 percent.

Sharp rises in consumer prices take the heaviest toll on lower-income households. Fernandez denies this is a major problem and bristles at criticism from the International Monetary Fund about government inflation data, which is widely believed to understate monthly consumer price rises.

"Do you know what it means when they say we should govern according to inflation targets?" Fernandez shouted during her address. "I will translate it for you. It means they want to cap your wages."

The black market peso, as measured by Reuters, slid 0.7 percent to 8.9 per dollar on the president's remarks.

Argentina's economy is expected to grow by about 5 percent this year despite looming fiscal troubles.

The country gets steady currency inflows from soy and corn exports but public spending has outpaced revenue as the October 27 legislative elections approach. Central bank reserves stand at about $37 billion versus $45 billion a year ago.

(Additional reporting by Alejandro Lifschitz and Jorge Otaola; Editing by Peter Galloway)

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