Republican lawmakers on Tuesday took a more conciliatory tone toward Democrat proposals to crack down on Wall Street as the Senate delayed debate on a broad financial reform package until next week.

The change in rhetoric could signal the two sides are moving closer to a deal after months of wrangling over how to overhaul regulations in the wake of the financial crisis.

I think we're headed to a place where this drama can be resolved peacefully, said Republican Bob Corker, who had been involved in earlier bipartisan talks on the bill.

Democrats are seeking at least one Republican vote to overcome procedural blocks to the financial reform bill, which is expected to begin debate next week, and are trying to build on widespread anti-bank sentiment ahead of the November mid-term elections.

If a single Republican is not willing to join with us, there will be no Wall Street reform. The Republicans will have killed Wall Street reform. I'm confident that's not what's going to happen, said Senate Democratic Leader Harry Reid.

Last week, all 41 Republicans in the 100-seat Senate said they would oppose the Democrat bill as currently written.

President Barack Obama will speak in Manhattan on Thursday on the need for reform. The full Senate had been expected to begin debate on the reform bill that day, although a Democratic aide said on Tuesday debate might be pushed back to next week.

Several Republicans said on Tuesday they were hopeful they could resolve their differences before the debate begins.

This bill can get 70 votes, but the rhetoric needs to calm down, said Republican Senator Mike Johanns.

Republican Senator Olympia Snowe, who is being wooed by the Obama administration to support the bill, said she is hopeful amendments to the bill will yield bipartisan support.

We're not drawing any lines in the sand, Snowe said.

The first test of Republicans' resolve may come on Wednesday, when the Senate Agriculture Committee considers a derivatives bill unveiled last week by its chairman, Blanche Lincoln, that will force big banks out of the $450 trillion derivatives market.

That committee is expected to debate and vote on the bill, passing the rules on to the full Senate floor, where they will become part of a larger Senate Banking Committee proposal.

The question about, 'Whose side are you on?' is a central question. It's a question that our friends on the Republican side of the aisle are going to have to answer, Democrat Senator Robert Casey said, ahead of the Agriculture vote.

Democrats are trying to use turmoil in the banking sector as leverage for reform, including recent fraud charges against Goldman Sachs by the U.S. Securities and Exchange Commission and the bankruptcy of Lehman Brothers in 2008.

Britain's Financial Services Authority followed the U.S. lead on Tuesday by starting a formal investigation into Goldman Sachs International in relation to the U.S. fraud allegations.

At a Capitol Hill hearing on the failure of Lehman on Tuesday, Democrat Paul Kanjorski said the investment bank's practices point to the need for financial reform.

But Spencer Bachus, the top Republican on the House Financial Services Committee, warned regulators should not be given more powers when they didn't use them well in the lead-up to the financial crisis of 2008.

RESOLUTION FUND A STICKING POINT

Citigroup Chief Executive Vikram Pandit, head of the third-largest U.S. bank, on Tuesday broke from Wall Street rhetoric and spoke out in support of a strong consumer protection authority, which is part of the proposed reforms.

Striking a contrite tone at the firm's annual meeting, Pandit said the financial industry strayed from its basic principles, contributing to the crisis that froze global credit markets.

Pandit has typically been more conciliatory toward Washington than other firms after Citigroup's needed a $45 billion taxpayer bailout.

A key sticking point in the Democrat plan is a proposed fund designed to help pay for the dismantling of troubled financial firms. Republicans have said that approach amounts to a standing bailout fund that will be used to prop up insolvent Wall Street firms deemed too big to fail, putting taxpayers at risk.

House Democratic Leader Steny Hoyer said on Tuesday the fund was not central to the bill, telling reporters that putting the referee back on the field is the main point of the bill.

The Senate Banking bill has proposed a $50 billion fund, while the House bill passed in December called for large firms to pay up to $150 billion into such a fund. The new fund would be in addition to the Federal Deposit Insurance Corp. which also restructures and shuts down smaller banks.

Community bankers, which hold political clout, continue to argue the fund is vitally important.

Some lawmakers such as Democrat Charles Schumer would also like to include in the bill a tax on banks proposed by Obama to recoup government bailout funds.

Finance ministers from the G20 nations will meet in Washington this week to consider global reforms, but sources said agreeing on tough new bank capital rules should take precedence over imposing a bank tax.

(Additional reporting by Kevin Drawbaugh, Rachelle Younglai, Clare Baldwin, Karey Wutkowski, Thomas Ferraro, Donna Smith, Andy Sullivan, Christopher Doering, Charles Abbott; Editing by Lisa Shumaker)

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