FILE PHOTO: Pedestrians walk past the entrance of the Buenos Aires Stock Exchange, in Buenos Aires, Argentina December 18, 2024. REUTERS/Francisco Loureiro/File Photo

By Rodrigo Campos and Karin Strohecker

NEW YORK/LONDON (Reuters) -Argentina's international bonds extended gains on Tuesday and the local peso firmed against the dollar after U.S. President Donald Trump spoke in support of his right-wing peer in Argentina, Javier Milei, and his economic program.

The World Bank said it aims to deploy up to $4 billion in Argentina in the coming months to support the South American country's reform agenda.

Argentine assets rose as Trump said the U.S. will help Milei's economic program to "ensure both countries' success," adding that the South American grains exporter will not need an outright bailout. Milei faces a key midterm election on October 26.

The day's market moves lifted bonds up by 2 to 3 cents, data from MarketAxess showed, with the 2046 up 2.8 cents at 59 cents on the dollar. The peso rose 4% to the dollar following a similar gain on Monday.

Stocks drifted higher, with the local benchmark up 1% after a Monday gain near 8%, and shares traded in U.S. exchanges rose 3%.

Argentine assets rallied on Monday after U.S. support was initially announced by Treasury Secretary Scott Bessent. Specifics of that support have not been disclosed.

"We're still awaiting more details, but the core aim is to stabilize Argentinean assets," said Shamaila Khan, head of fixed income for emerging markets and Asia Pacific at UBS.

"The statements from Bessent yesterday were remarkably strong and unprecedented in their support for Argentina," she added. "Regardless of the specific announcements, we anticipate that Argentina will receive the necessary support."

WHAT WILL U.S. SUPPORT LOOK LIKE?

The country's embattled peso currency strengthened nearly 5% to the dollar, extending Monday's rise in a sharp reversal from last week, when the Argentine central bank burned through more than $1 billion of reserves to defend its currency.

Lack of detail on what the Trump administration would provide to Argentina had investors speculating on the shape and size of the support.

"For the short term, it's certainly good," said Juan Perez, director of trading at Monex. "But in the long term, we'll see what the commitment actually materializes into."

He said Argentina is benefiting from being politically aligned with the Trump administration.

"The U.S. administration has made it very clear that when it comes to global trade, any type of commercial relationship is not going to be based solely on numbers or business. It's also going to be somewhat embedded with an agenda or with some sort of political goal behind it."

Earlier this year, Argentina renewed a $5 billion swap line with China's central bank, which forms part of an overall $18 billion facility with the PBOC that has helped the South American nation to shore up its reserves, but has also drawn ire from Washington.

MILEI'S REFORMS ON TRACK?

Financial assets of Argentina, a serial defaulter on its debt, have been on a rollercoaster in recent months and years.

Investors have broadly warmed to Argentina since Milei became president in December 2023 and launched an ambitious reform program.

However, markets have fallen sharply in recent weeks, with international bonds still down near 10% for the year and the peso coming under pressure after corruption allegations inside Milei's inner circle and a larger-than-expected loss in a local election in Buenos Aires triggered concern over his ability to reshape the economy.

(Reporting by Karin Strohecker and Rodrigo Campos; additional reporting by Nikhil Sharma, Andrea Shalal, David Lawder and Saqib Ahmed; editing by Marc Jones, Franklin Paul and Richard Chang)