People walk in front of Argentina's Central Bank in Buenos Aires, Argentina, Friday, Aug. 23, 2013. A U.S. appeals court dealt Argentina a blow Friday in the lengthy legal battle over the country's massive 2001 default, upholding a ruling ordering it to pay $1.4 billion to bondholders. Argentine officials have warned the impact of a ruling against the country could be severe, since a novel payment formula already generally upheld by the appellate court last year could prompt the South American government to default again. (AP Photo/Victor R. Caivano)

By Hugh Bronstein and Joseph Ax

BUENOS AIRES/NEW YORK, June 18 (Reuters) - Payment of bond service due on June 30 in New York has been made "impossible" by Wednesday's lifting of a stay by a U.S. federal court, Argentina's economy ministry said on Wednesday, in a move that appeared to move the country closer to default.

It said in a statement that Argentina "lamented" the lifting of the stay by U.S. District Judge Thomas Griesa in Manhattan, but that the government remained willing to pay holders of its restructured debt. But the lifting of the stay would require payment be made to holdout bond investors as well, something Argentina says it cannot afford to do.

Earlier on Wednesday a lawyer for the country said in Manhattan federal court that Argentine officials will seek next week to negotiate for the first time with hedge funds that refused to take part in its debt restructuring.

The South American grains powerhouse is locked in a 12-year-old legal fight with "holdout" creditors who refused to participate in two bond restructurings that followed Argentina's 2002 sovereign default.

The holdouts, disparaged as "vultures" by the Argentine government, are suing for 100 cents on the dollar rather than swallow the steep discounts that were accepted by holders of bonds that were revamped in 2005 and 2010. The June 30 payment to those investors is now in question as another default looms.

Economy Minister Axel Kicillof floated the idea on Tuesday of Argentina swapping its bonds governed by New York law for those under local jurisdiction as a way out of the bind.

In Wednesday's statement, his ministry said: "Argentina reiterates its willingness to pay the holders of restructured bonds, which it has always offered to honor under Argentine law." (Reporting by Joseph Ax, Nate Raymond, Alexandra Ulmer, Alison Frankel and Daniel Bases; additional reporting by Carolyn Cohn and Sujata Rao-Coverley in London.; Editing by Chizu Nomiyama, Jonathan Oatis, John Pickering and Eric Walsh)