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By Nicole Hong, Ken Parks and Matt Day 

Financial markets in Argentina pulled back modestly following the country's second default in 13 years, as government officials vowed to take their fight with creditors to an international court and banks scrambled to cut a deal to resolve the conflict.

J.P. Morgan Chase & Co. is in talks to buy bonds from a group of hedge funds demanding full payment from Argentina, a person familiar with the matter said. Argentine media have reported that private-sector banks are attempting to arrange a deal to help Argentina pay off debt it owes the funds, who have sued for full payment on bonds the country defaulted on in 2001.

Investors and analysts view such a deal as the best hope to pull Argentina out of default. A U.S. District Court ruled that Argentina must pay the so-called holdout creditors when it pays holders of restructured bonds. On Wednesday, Argentina defaulted on the restructured bonds after a 30-day grace period on an interest payment ran out. Standard & Poor's Ratings Services declared the country in default on some bonds on Wednesday.

The International Swaps and Derivatives Association will on Friday rule on whether Argentina's failure to make certain bond payments will trigger a payout on insurance contracts linked to that debt.

In Argentina, Cabinet Chief Jorge Capitanich said the country's situation raises questions about the "precariousness of the U.S. justice system," and said the government would take its battle to the International Court of Justice in The Hague. On Wednesday, government negotiators ended talks in New York with a U.S. court-appointed mediator and flew back to Buenos Aires.

Argentina's dollar-denominated bonds due in 2033, the ones whose interest payment was due, fell to near 90 cents on the dollar, from a closing price of 96 cents late Wednesday, traders said. Bond yields rose to 9.7%, from 8.8%. Prices move in the opposite direction as yields. U.S.-traded shares of BBVA Banco Frances SA fell 10.5%, while shares of Grupo Financiero Galicia SA and Pampa Energia SA were both down 8.4%.

Analysts said investors were reluctant to sell while there was prospect of a quick resolution.

"The expectation of a bank deal is supporting bond prices," said Siobhan Morden, head of Latin America strategy at Jefferies LLC. "But it's difficult to trade these headlines when you're getting whiplashed" by sharp price moves in thin trading. "Most people have adopted their view, taken their positions, and waited to see what the final outcome will be, " Ms. Morden said.

Argentina's latest default can trace its roots back to the country's decision to repudiate about $100 billion in debt during a deep economic crisis in 2001. After years of confrontation with creditors, investors exchanged almost 93% of their defaulted bonds for new securities in heavily discounted restructurings in 2005 and 2010 that gave them just 33 cents on the dollar.

But some investors refused to take the new bonds, with many suing in U.S. courts for full repayment. These included hedge funds led by Elliott Management Corp.'s NML Capital Ltd. and Aurelius Capital Management LP, which have won about $1.6 billion after years of litigation.

In a statement early Thursday, NML said the mediator "proposed numerous creative solutions," but "Argentina refused to seriously consider any of them, and instead chose to default."

U.S. courts had jurisdiction over these lawsuits because Argentina had agreed in some of its bond contracts to resolve any disputes under New York law.

After Argentina denounced several U.S. court rulings awarding judgments to creditors and consistently refused to pay the holdouts, U.S. District Court Judge Thomas Griesa issued his unprecedented 2012 ruling that barred Argentina from paying its restructured bondholders unless it also pays the holdouts. That ruling was upheld by the Second Circuit Court of Appeals and the U.S. Supreme Court in June declined to hear Argentina's appeal.

Judge Griesa will hold a hearing on Friday.

A prolonged default would pressure an economy already mired in recession, potentially leading to higher inflation and a weaker currency. The breakdown of negotiations complicates Argentine President Cristina Kirchner's efforts to stabilize the economy before she steps down in December 2015.

Argentina deposited $539 million for the interest payment on restructured bonds with Bank of New York Mellon Corp. on June 26. On Thursday, BNY Mellon sent a letter to bondholders explaining why the interest payment was missed. "The nature and timing of any future court order regarding the funds are not yet known," the letter said.

Argentina isn't in default, because it made the payments on time and investors should pressure the bond trustee to get their money, Mr. Capitanich said.

"Many bondholders who participated in the restructurings don't have an aggressive judicial attitude as if the money wasn't important to them," he said. "What they ought to do is demand their payment."

Emily Glazer, Katy Burne and Ben Edwards contributed to this article.