Image copyright AP Image caption Cristina Fernandez de Kirchner went on national television to say her country could not comply with the ruling

Argentina's Congress has passed a bill designed to defy a US court ruling that pushed the country into default in July.

It relates to a protracted dispute with hedge funds demanding payment of $1.3bn (£766m) on bonds they hold from a default 13 years ago.

The hedge funds had won a ruling in the US preventing Argentina distributing interest payments to all bondholders.

The court barred some banks from making payments on $29bn of bonds.

But the bill is designed to side-step this. It would allow Argentina to make payments locally or in jurisdictions beyond the reach of the US courts.

The bill still needs to be signed off by President Cristina Fernandez de Kirchner, who has described the hedge funds as "vultures" and accused the court of interfering in an issue of national sovereignty.

Argentina fell into default again in July after District Judge Thomas Griesa barred the Bank of New York Mellon from transferring an interest payment to bondholders unless Argentina settled with the hedge funds.

The hedge fund investors bought Argentine government bonds at a big discount after the 2001 default. They rejected the terms of a restructuring and are demanding a full 100% repayment of the debt.

If overseas bondholders want payment, it could mean many having to first change their jurisdiction to avoid breaching the court's ruling.

Write-off

But Alejo Costa, chief strategist at Argentine investment bank Puente, said he did not expect many creditors to do so.

The government is at least signalling that "they're doing what they can to make the payment," he said.

Argentina is in a race against time to make a $200m interest payment due on 30 September. It needs an intermediary bank outside the US court's jurisdiction in which it can deposit the money.

The South American country defaulted in 2001 following an economic crisis, and has been in a legal battle with bondholders led by hedge funds NML and Aurelius Capital Management.

Under a restructuring of the debt, 92% of bondholders agreed in 2005 and 2010 to write off two-thirds of the bonds' pre-crisis value, providing Argentina with time to rebuild its economy.