NEW YORK, July 3 (Reuters) - A U.S. appeals court on

Wednesday set aside a judge's ruling that bondholders had valid

claims against Venezuela's state-run oil company related to its

U.S. refiner Citgo, and directed the judge to apply Venezuela

law in assessing the claims.

The decision by the 2nd U.S. Circuit Court of Appeals in

Manhattan could provide a boost to opponents of Venezuelan

President Nicolas Maduro, who have since 2019 controlled some of

the Petroleos de Venezuela's (PDVSA) overseas assets.

U.S. District Judge Katherine Polk Failla in Manhattan had

applied New York law in October 2020 when she authorized PDVSA

bondholders to seize a 50.1% stake in Citgo, a PDVSA subsidiary

that had been pledged as collateral for the bonds.

Failla also entered a $1.68 billion judgment against PDVSA,

declaring it in default.

The bonds had been issued under Maduro, but opponents said

the opposition-controlled National Assembly never approved using

Citgo as collateral.

In Wednesday's decision, the 2nd Circuit said that while it

could decide questions of foreign law, Failla was in a better

position because she had reviewed materials from the parties and

expert witnesses.

Venezuela's opposition wanted the dispute resolved under

their country's law.

Lawyers for PDVSA and for the bondholders' respective

trustee and collateral agent, MUFG Union Bank and GLAS Americas,

did not immediately respond to requests for comment.

Citgo is considered Venezuela's most prized asset outside

the country.

Based in Houston, Citgo operates three refineries and a

network of pipelines and terminals, and supplies thousands of

Citgo-branded gas stations.

In October 2022, the 2nd Circuit had asked New York's

highest court for guidance on whether Venezuelan or New York law

governed the bond dispute. The state court decided in February

that Venezuelan law applied.

The case is Petroleos de Venezuela SA et al v MUFG Union

Bank NA et al, 2nd U.S. Circuit Court of Appeals, Nos. 20-3858,

20-4127.