(Adds Frank comments, details of bill, background)

By Kevin Drawbaugh

WASHINGTON, Jan 9 (Reuters) - A senior Democrat proposed legislation on Friday to tighten the rules of the government's $700-billion financial bailout program and channel a large portion of it to home foreclosure prevention.

With Congress growing increasingly concerned about fixing the bailout program and stabilizing the financial system, House Financial Services Committee Chairman Barney Frank said he will hold a hearing on Tuesday on the bill he is proposing, with a House floor vote possible on Wednesday or Thursday.

Known as the Troubled Asset Relief Program, or TARP, the Treasury Department's bailout has so far devoted about $350 billion to capital injections into major banks and smaller amounts to aiding automakers and a major insurer.

Approved in October, the program's focus has shifted repeatedly under the direction of Treasury Secretary Henry Paulson, raising concerns among lawmakers about its future.

Under the original TARP legislation, the White House must ask Congress for the next $350 billion of program funding. Frank's bill would set conditions for release of that money, which would impose tougher standards for the bailout.

"We are Reaganites, we intend to trust but verify," Frank, a Massachusetts Democrat, told reporters.

The bill is still being finalized, but was drafted after consultation with officials in the Bush administration and the incoming administration of President-elect Barack Obama. Obama will take over the White House on Jan. 20.