* U.S. Senate bill credit rater language similar to House

* Shares of Moody's, McGraw Hill fall

* Senate bill would give SEC more power over raters
(Adds further detail on proposals in paragraphs 7-9, updates
share prices)

By Rachelle Younglai

WASHINGTON, Nov 10 (Reuters) - Credit rating agencies,
accused of assigning top ratings to shoddy securities, would be
exposed to greater liability under a wide-ranging financial
services reform draft bill released by a leading U.S. senator.

The draft bill unveiled on Tuesday would give investors an
easier way to sue firms like Moody's Corp (MCO.N: Quote, Profile, Research), Standard &
Poor's (MHP.N: Quote, Profile, Research) and Fitch Ratings (LBCP.PA: Quote, Profile, Research), if they knowingly
and recklessly failed to investigate or obtain analysis from an
independent source.

On the New York Stock Exchange, shares of Moody's fell 3.3
percent to $23.78 and McGraw Hill, the parent of Standard &
Poor's, dropped 1.9 percent to $29.79.

The credit rater language in the legislation released by
Senate Banking Committee Chairman Christopher Dodd, is similar
to a House bill that would also open the door to more investor
lawsuits. That makes it increasingly likely that the credit
rating industry will face tougher regulation in any final
financial regulatory overhaul that becomes law.

"To me it is all part of the politicking and greater
regulatory scrutiny that these firms will be under," said Greg
Peters, head of fixed-income research at Morgan Stanley in New
York.

"You can't get rid of the rating agency model, but you can
put tighter regulation around it to provide comfort," said
Peters.

The Securities and Exchange Commission has already adopted
numerous rules to improve credit rater disclosures and rein in
potential conflicts of interest. For example, the SEC banned a
rating firm's employee from both rating and determining a fee
for the same product.

The draft Senate bill would order the SEC to write rules
improving the methodologies credit rating agencies use to
determine ratings. It would also require credit raters to
submit annual internal control reports to the SEC.

The SEC's authority to revoke a credit rating agency's
registration would be bolstered under the Senate bill and the
agency would create an office dedicated to overseeing the
credit raters.

A spokesman for Moody's said the firm shares the objective
of policymakers in bringing increased transparency to the
ratings process.

Calls to Standard and Poor's and Fitch were not immediately
returned.

U.S. lawmakers have pushed for more oversight of credit
raters after the companies failed to spot problems with debt
linked to bad mortgages. The implosion of these securities
helped contribute to the global financial crisis.

"In this crisis, instead of helping people better
understand risk, (credit agencies) failed to warn people about
risks hidden throughout layers of complex structures," Dodd
said in a summary of his bill.

Dodd, a Connecticut Democrat, will shepherd the financial
regulation bill through the Senate. It includes creation of a
new agency to monitor risk in the financial system.

Both the full U.S. House and Senate have yet to vote on
financial regulatory reform legislation. If they eventually
approve bills, negotiators from both chambers must reconcile
them into a final version before it can become law.

A copy of Dodd's bill can be seen here

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(Reporting by Rachelle Younglai in Washington and Walden Siew
in New York; Editing by Tim Dobbyn)