Talk today that Argentina would default on its $128 billion foreign debt raised the specter of 1998, when markets were rocked by Russia's debt default.

Concern escalated Thursday after a plan for government spending cuts, released Wednesday night, met with strong public opposition. Drawn up hastily in the wake of an unsuccessful government debt auction, the spending cuts are seen as crucial to Argentina's ability to pay its debt. Latin American stock markets and currencies crumbled -- the Brazilian real closed at its third record low in a row Thursday.

Some worry that an Argentine default could result in a repeat of the 1998 crisis -- inducing flight from risk, slamming the door on already sluggish financing for emerging markets and forcing a global emerging-markets recession. An emerging-markets recession, in turn, could slow an uncertain second-half economic recovery in the U.S. But most market prognosticators say the risks of global contagion are far less severe than in 1998, and that the threat to the U.S. economy is actually minimal.

"The two big differences with 1998 -- and they're very, very big differences -- are that

a default would be well-signaled if there were one, so people would have a chance to prepare for it," said Geoffrey Dennis, emerging-markets analyst at

Salomon Smith Barney

. "The other difference was the amount of money there was in the debt market then, and the amount of leverage."

Investors are far less exposed to emerging markets and government debt today, having pulled out after the Mexican crisis of 1994 and the Russian crisis of 1998. While some banks still deal in government debt, including

Citigroup

(C) - Get Report

and

FleetBoston Financial

(FBF)

, it's largely left to the

International Monetary Fund

and the

World Bank

.

Leveraging -- or buying on borrowed money -- is also far less prevalent. In the 1998 crisis, a lot of hedge funds and mutual funds were highly leveraged in emerging-market debt. When the bottom fell out of the Russian market, panic selling spread to other emerging markets. Many of those players were simply washed out, and many more unwound their leverage in order to avoid getting burned in the future, strategists say.

Of course, the risk remains. If Argentina were to default, and the rest of the emerging markets caught Argentina's flu, it could potentially drive up the dollar -- whose strength has already been a thorn in the side for U.S. exporters and multinationals -- and put pressure on already weak U.S. markets, as investors flee high-risk instruments for quality.

Risk aversion could cause "withdrawal from riskier assets in the U.S., people would be less willing to lend, capital markets would be more nervous, it could hurt investor and consumer sentiment," said Craig Blessing, head of emerging markets at

Chase Global Asset Management

.

But it could also do just the opposite, bolstering an economic recovery in the U.S. by drawing investors back in just as the economy is starting to turn. "We work on the first-in, first-out strategy this way," said Dennis. "First into the global recession, first out."

Indeed, the U.S. stock market yawned about concerns crippling faraway Argentina today, focusing instead on the potential for corporate America's recovery. After tech heavyweights

Microsoft

(MSFT) - Get Report

and

Yahoo!

(YHOO)

released positive earnings news last night,

stocks rallied in earnest for the first time in weeks.