Senate Republicans on Tuesday floated their first counterproposal to rewrite financial regulations after blocking a more sweeping Democratic plan for a second straight day.

With the two parties locked in a stalemate on the Senate floor, the Republican proposal, obtained by Reuters, could propel the two sides toward common ground on the most ambitious rewrite of Wall Street rules since the Great Depression.

The GOP bill is not conceptually that far from what the Democrats want ... We continue to believe that we will get a moderate financial reform bill as both sides have an incentive to reach a deal, said policy analyst Jaret Seiberg at investment firm Concept Capital.

As Goldman Sachs executives sweated through tough questioning by a Senate panel, Democrats calculated that Republican resistance to the bill would crumble amid election-year pressures and widespread anger at Wall Street.

But they again fell short of the 60 votes needed to begin debate on the bill, which would deal with the problem of too big to fail financial firms, ban banks from some lucrative trading practices and subject banks to tougher oversight.

As on Monday, no Republicans sided with Democrats in the 57-41 vote. Key moderate Republicans said they had seen no developments to change their minds over the past 24 hours, and felt no pressure from voters to switch their position.

I think people trust me to make the right decision, said Republican Senator Olympia Snowe.

Another vote is expected on Wednesday as Democrats try to cast Republicans as allies of a greedy Wall Street, perhaps the only address more unpopular with the public than Capitol Hill.

ELECTIONS IN VIEW

Lawmakers from both parties are eager to tighten oversight of the financial industry before the November congressional elections. Many expect a bill will eventually pass.

President Barack Obama and his fellow Democrats want tighter rules to prevent a repeat of the 2008-2009 financial crisis, which punished the economy with a deep recession.

I'm not going to let this effort fall victim to industry lobbyists, Obama told a town hall-style meeting in Iowa.

The 1,558-page Senate bill would set up a new orderly liquidation process for dismantling large firms in distress and create a new financial consumer protection watchdog.

It would impose regulations on the over-the-counter derivatives markets, curb risky trading by banks, force hedge funds to register with the government and crack down on debt securitization. Republicans see a need for reform, but say the Democrats' bill reaches too far.

The House of Representatives approved a bill in December that embraced many reform proposals made in mid-2009 by Obama. Anything the Senate produces would have to be merged with the House bill. Analysts have said that could happen by mid-year.

CONSUMER-PROTECTION STILL AN ISSUE

As party leaders blasted each other in news conferences and e-mail releases, the top Democrat and Republican on the Senate Banking Committee huddled to work out a compromise.

Republican Richard Shelby said he and Democrat Christopher Dodd were near agreement on the language that would govern how troubled firms could be shut down. But he said they remained far apart on consumer-protection measures.

The two had met earlier in the day and were expected to meet again after the afternoon vote.

The Republican proposal is the first time the minority party in the Senate has set down its goals on paper during months of closed-door negotiations. It would set up a consumer-protection council, rather than the consumer-watchdog bureau envisioned by Democrats.

Republicans would also set up a process to wind down too big to fail firms, but without the $50 billion fund proposed by Democrats.

Republicans also want to restrict the Federal Reserve's emergency-lending authority, while also allowing national bank regulators to continue to preempt state laws.

Other issues are in play as well.

Snowe said she was heartened that the Democrats had kept tough language to police the $450 trillion derivatives market in their bill, but said she wanted to ensure small businesses would not be hurt.

Nebraska Senator Ben Nelson, the lone Democrat to join Republicans in opposing the bill, said he opposed a measure that would force companies to hold collateral against existing derivatives contracts -- a key concern of financial titan Berkshire Hathaway Inc, which his headquartered in his state.

Financial markets see the debate on U.S. regulation as crucial to how banks will be valued in the future, how much they may have to raise their capital and how much risk investors will be able to put on the table.

Stock markets fell worldwide earlier this month on signs of a crackdown on financial firms like Goldman Sachs. Markets were preoccupied on Tuesday with debt troubles in Europe, putting aside the regulation battle.

(Additional reporting by Rachelle Younglai, Thomas Ferraro, Kim Dixon and Patricia Zengerle; Editing by Andrew Hay)

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