By Walter Bianchi
BUENOS AIRES (Reuters) - Argentina is in talks to renew and potentially expand its currency swap line with China, a central bank source said on Wednesday, as the South American country battles tumbling foreign reserves that threaten its ability to meet payments.
The country has free access to some $5 billion as part of the China currency swap agreement that totals 130 billion yuan ($18.81 billion). The two countries activated the usable portion in January to help bolster Argentina's embattled peso.
The government source said the central bank was "advancing towards the renewal of the swap and discussing the possibility of increasing the unrestricted amount", with the aim to have an agreement ready to sign by the end of May.
"The idea is to have everything sealed to travel and sign at the end of the month," the source added. Economy Minister Sergio Massa and central bank chief Miguel Pesce are expected to travel to China from May 29 to June 4.
An economy ministry source, asked about the swap deal, said there could be news around the trip but gave no details.
Argentina must rebuild its reserves to cover trade costs and future debt repayments, as well as to meet economic targets under its $44 billion loan program with the International Monetary Fund (IMF), which it is currently trying to revamp.
China has been touting international usage of the yuan currency as a rival to the U.S. dollar, gaining a foothold in South America where it is the largest trade partner for many regional economies.
In April Argentina said it would start to pay for Chinese imports in yuan rather than dollars, a measure also aimed at relieving the country's dwindling dollar reserves.
Argentina's foreign currency reserves have fallen sharply this year as a major drought battered exports of cash crops corn and soy and the peso weakened, pressured by 109% annual inflation and political uncertainty ahead of elections in October.
($1 = 6.9121 Chinese yuan renminbi)