By Hugh Bronstein and Jorge Otaola
BUENOS AIRES (Reuters) - Argentina's beleaguered peso stabilized on Friday as the central bank said it would auction a large amount of dollar reserves and the International Monetary Fund issued a strong statement of support for President Mauricio Macri's government.
With frustration rising over inflation of more than 30 percent and austerity measures required under a $50 billion IMF standby deal, members of the opposition Citizens' Unity party called for protests against Macri across the country on Friday evening.
The party's populist leader, former President Cristina Fernandez, may run against Macri for president next year, despite a graft scandal that has marked by the jailing of several of her former officials, further eroding confidence in the country's economy, Latin America's third largest.
Macri is caught between voters tired of fiscal belt-tightening measures already implemented and investor pressure to unveil a package of further spending cuts austere enough to calm the markets.
Many Argentines blame the IMF for imposing budget cuts that plunged millions into poverty during 2001-02 economic crisis.
The peso strengthened 3.5 percent in early Friday trade to 37.80 to the dollar after the central bank said it would auction $675 million in foreign reserves. It remains the world's worst performing currency so far this year.
"The peso is recovering thanks to the central bank actions," said Gustavo Quintana, a trader at local brokerage PR Corredores de Cambio.
The bank had offered $500 million per day over recent sessions. Through Thursday the peso had fallen more than 30 percent against the greenback in August.
Two-thirds of that drop came on Wednesday and Thursday after Macri said he would ask the IMF to advance disbursements under a $50 billion financing deal. The announcement raised alarms among investors that Argentina might be hard pressed to fund its 2019 deficit.
"Argentina has the full support of the Fund and we are confident that the strong commitment and determination of the Argentine authorities will help the country overcome the current difficulties," IMF spokesman Gerry Rice said in a statement.
The backing expressed by the Fund helped the peso stabilize, at least temporarily, said Ignacio Labaqui, an analyst for New York consultancy Medley Global Advisors.
"IMF support is definitely helpful at this stage," he said.
SPENDING CUTS
A policy package containing further government spending cuts is expected to be announced next week. But any more belt tightening will meet strong opposition, as discontent with Macri grows over high inflation, a weak economy and subsidy cuts that have jacked up household heating and water bills.
Several short-term general strikes have been called next month by leading labor groups protesting fiscal cuts.
With more austerity on the way, and utility prices set to rise again in the fourth quarter, low and middle income Argentines are hard-pressed to pay their monthly household costs. Yet fiscal tightening is exactly what the IMF and the markets want to see.
"If the government fails to deliver a convincing austerity package, the peso will probably slide further and another large interest rate hike would be likely," consultancy Capital Economics said in a research note.
IMF Managing Director Christine Lagarde, Fund staff and Finance Minister Nicolas Dujovne were scheduled to meet on Tuesday "to advance the dialogue," Rice said.
Speaking to reporters on Thursday night, Dujovne said the government would announce a set of new economic measures on Monday, and would target a 2019 primary fiscal deficit below the 1.3 percent of gross domestic product agreed with the IMF.
Earlier that day, the currency closed at a record low 39.25 pesos per dollar. Also on Thursday the central bank hiked its monetary policy interest rate by 15 percentage points to a dizzying 60 percent, a move designed to fight inflation but that will shut down the already scarce amount of credit available to help businesses expand.
Tens of thousands of people marched through downtown Buenos Aires on Thursday evening demanding higher budgets for public universities and higher salaries for university professors and staff.
Protesters say salaries have been eroded by inflation that clocked in at an annual rate of 31.2 percent in July.
"In the context of the debate over the IMF's adjustment budget, we need to organize to change the economic path," said Vinesa Siley, a lawmaker in Argentina's lower house of Congress aligned with former populist leader Fernandez.
(Additional reporting by Hugh Bronstein, Scott Squires, Gabriel Burin and Rodrigo Campos in New York; Editing by Leslie Adler and Steve Orlofsky)
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