By Jonathan Stempel

NEW YORK (Reuters) -The U.S. government sided with Argentina in urging a federal judge not to force the cash-strapped country to give up its 51% stake in oil and gas company YPF to partially satisfy a $16.1 billion court judgment.

In a Wednesday night letter, known as a statement of interest, to U.S. District Judge Loretta Preska in Manhattan, the Department of Justice said it has long argued that U.S. courts cannot order the seizure of foreign sovereign property located outside the United States.

It also said it would violate sovereign immunity to require Argentina to turn over the shares to two investors represented by litigation funder Burford Capital, and that allowing such a turnover could interfere with U.S. foreign policy.

Argentina is appealing Preska's September 2023 decision to award the $16.1 billion to Petersen Energia Inversora and Eton Park Capital Management. Burford has said it expected to receive 35% and 73% of their respective damages.

In a statement on Thursday, Burford said the letter addressed a narrow question of law, and did not reflect the Justice Department taking a broader position in the case.

Robert Giuffra, a lawyer for Argentina, declined to comment.

Led by libertarian President Javier Milei, Argentina has slashed public spending to reduce inflation, which has fallen but remains above 200% annualized, though its measures have deepened a recession and contributed to poverty rates rising above 50%.

But Milei's ties with U.S. President-elect Donald Trump could help with Argentina's $44 billion loan program with the International Monetary Fund, which could be revisited next year.

The $16.1 billion judgment arose from Argentina's 2012 seizure of the 51% YPF stake held by Spain's Repsol, without tendering for shares held by minority investors.

Burford has said Argentina's "many years of structuring its assets to avoid enforcement" justified turning over the YPF stake, and that a commercial activity exception to the federal Foreign Sovereign Immunities Act allowed a turnover.

In Wednesday's letter, the Justice Department said Congress did not intend when passing that law to eliminate immunity for foreign sovereign property such as the YPF shares.

It said ending immunity would create an anomaly where a foreign country's property inside the United States would have greater protection than property inside the country itself.

The Justice Department also said that for reasons of comity, meaning the respect that countries afford each other by limiting the reach of their laws, New York state's own turnover statute did not require Argentina to give up the YPF shares.