U.S. Markets close in 3 hrs 32 mins

IMF's Lagarde says Argentina default not market-shaking

WASHINGTON (Reuters) - A potential default by Argentina is unlikely to prompt broader market repercussions given the country's relative isolation from the financial system, the IMF's head said on Tuesday.

The Latin American country could face its second default this century if last-minute talks in New York with 'holdout' debt investors fall through this week.

"While default is always regrettable, we do not believe that it would have major substantive consequences outside, on a much broader basis," IMF Managing Director Christine Lagarde told reporters, echoing widespread perception that any default would be highly unlikely to send shockwaves through emerging markets worldwide.

"The outcome of the legal decisions that are being made in New York at the moment ... have much broader significance," Lagarde added. "The debt restructuring principles and the efficiency of collective action clauses will have to be reviewed."

The IMF has said a decision in favor of Argentina's holdout creditors could make it easier for investors in sovereign bonds to hold out for more money in the event of a restructuring. The global financial institution is currently working on a paper for September that would analyze the rules around collective action clauses, which allow a majority of investors to force everyone to agree to a restructuring.

(Reporting by Anna Yukhananov; Editing by Andrea Ricci)