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Banco Santander's SA (STD) plan to list the shares of its Argentine subsidiary on the New York Stock Exchange later this year will be an important test of investor appetite for exposure to Argentina's fast-growing but unstable economy.

Brian Joseph, head of trading at brokerage Puente, said the share offering will likely attract considerable demand from investors who want exposure to Argentine assets, but don't want to run the gauntlet of foreign exchange and capital controls that make investing in the local market a dicey proposition.

"A bank issuing [American depositary shares] will give hedge funds access to Argentina," said Joseph, adding that Argentine banks are trading at attractive valuations compared with their peers in Latin America.

On Thursday, Banco Santander Rio SA (BRIO.BA) filed with the U.S. Securities and Exchange Commission for an initial public offering of shares. The bank said that proceeds from the IPO will be used to fund lending, acquisitions, and the addition of 100 branches and 200 ATMs by 2013.

Argentina boasts a diversified manufacturing sector and is one of the world's biggest bread baskets. The country ranks as the globe's No. 2 corn exporter, the third-largest soybean exporter and the leader in soymeal and soyoil exports.

The economy has grown more than 6% in six of the last eight years thanks to high global prices for its agriculture exports and strong demand for manufactured goods like cars and home appliances in Brazil.

The Central Bank of Argentina's latest forecast sees gross domestic product expanding more than 6.5% this year, down from blistering growth of 9.2% in 2010.

However, the economy is showing signs of overheating amid capacity constraints in a number of key industries and a government spending spree ahead of a presidential election in October.

The result is annual inflation that most private sector economists say will likely remain above 20% for a second straight year in 2011. Heavily criticized official data put inflation as measured by the government's consumer price index at a more benign 9.7% at the end of April.

President Cristina Fernandez and her ministers have publicly dismissed the threat of inflation and closed the door on any measures aimed at cooling the economy. Instead, the administration has ramped up spending and tried to spur the production of goods and services by offering soft loans to businesses.

Rampant inflation and Argentina's dependence on favorable terms of trade leave it vulnerable to what some economists warn could be a hard landing for the economy as early as 2012.

Recent comments by a top minister hint at further radicalization of the government's populist policies during a second Fernandez government. Fernandez has yet to say if she will seek reelection, though polls give her a significant lead over rivals.

Still, banks have profited handsomely from the current economic environment as inflation and annual wage hikes of 20%-40% won by unions fuel demand for high-margin consumer credit. With loans expanding at double-digit rates and asset quality holding up thanks to a booming economy, the banking industry looks set to repeat last year's hefty 24% return on equity.

Indeed, Santander Rio, Argentina's largest private sector banks by loans and deposits, was in a class of its own, with a return on equity of 46% in 2010.

"Within the local financial system, it is an attractive investment alternative. It's one of the most profitable [banks]," said Juan Jose Vazquez, senior analyst at Bull Market Brokers.

But Argentine bank shares have gone from being last year's darlings, when some shares more than doubled in value, to the dogs of the local bourse in 2011.

Shares of the four leading banks are down 14% to 29% so far this year compared to a 7% drop in the benchmark Merval equity index as Europe's sovereign debt crisis and a sluggish U.S. economy take the shine off emerging market assets.

Santander Rio didn't disclose the terms and the timing of its IPO on the NYSE under the ticker BSAR. In February, Santander filed with Argentine regulators to sell shares of Santander Rio on the Buenos Aires Stock Exchange, where it currently has a token float of less than 1%.

-By Ken Parks, Dow Jones Newswires; 54-11-4103-6740, ken.parks@dowjones.com