An estimated £2.4 billion was taken from privately held accounts and converted into treasury bonds that were then deposited in the Argentine Treasury's account at the state-owned bank Banco de la Nacion.

Economy minister Domingo Cavallo said the money would be used to pay debt, public sector salaries and pensions. Although he pledged that the money would be returned to the banks from which it had been seized, he gave no indication of when that might be.

The Retirement and Pension Fund Administrators (AFJP) organisation said yesterday it would challenge the plan. Its chairman, Jorge Castorina, said he believed "centralising the risk in a sole debtor is inappropriate". The pension fund administrators control some $20 billion (£14 billion) of assets, but many of these are in long-term investments.

Argentina's efforts to ease its crushing debt burden by swapping existing high-yield bonds for new bonds with lower yields and longer maturities is already considered a technical default by Wall Street, because investors are getting less than they had been promised.

But that could turn into a full-scale meltdown if Argentina is unable to meet some $1.2 billion of debt payments due later this month. Servicing the $132 billion it owes creditors already costs Argentina nearly half of its gross domestic product and has kept the country in recession for nearly four years.

The move is just the latest in an escalating crisis that many now think will claim the job of President Ferdinand de la Rua as protests against economic mismanagement become increasingly common on the streets of the capital, Buenos Aires.

Mr Cavallo said yesterday that the country is in a "virtual state of pre-bankruptcy", although he attempted to reassure investors that the debt payments would be met. He was meeting officials from the International Monetary Fund in Washington yesterday to continue negotiations over the restructuring of the debt.

It follows the IMF's decision to withhold a $1.3 billion loan from a $21 billion line of credit earlier in the week out of frustration at the government's failure to cut spending.

The present inability to get additional funds from the IMF will make it more difficult for Argentina to maintain its currency peg with the dollar, which guarantees that the peso remains at parity with the US currency.

The New York credit rating firm Moody's said new currency controls implemented during the past few days effectively ended convertibility between the dollar and the peso, despite Argentina's assurance that devaluation was "unthinkable". Less than a week after announcing the controls, Mr Cavallo eased the measures.

He is also under pressure from the IMF to elaborate on the country's fiscal plans and explain how Argentina will comply with its "zero-deficit" budget plan, scheduled to be debated by the country's parliament in the coming weeks.

The risk premium on Argentine bonds topped 4,000 basis points yesterday, meaning the yield was more than 40pc above comparable US Treasury bonds. But the MerVal stock index surged 7.02pc at midday to 245.29.

Analysts said Argentinians were investing in shares that could be sold in the future for dollars that have become increasingly scarce.