UPDATE 1-US Senate presses ahead on housing, delay rejected

(Recasts with letter details; Reid, McConnell, Manley comments; background)

By Kevin Drawbaugh

WASHINGTON, June 18 (Reuters) - The U.S. Senate will begin debate on a major housing market rescue bill on Thursday, Senate Majority Leader Harry Reid said on Wednesday, spurning calls for delay by Republicans who cited concerns about a controversy involving two Democrats and a mortgage lender.

In a letter that a Reid aide called "disgraceful," nine Republican senators asked Reid, a Nevada Democrat, to delay consideration of the housing legislation, which advocates say could save thousands of homeowners from foreclosure.

The Republicans said they wanted time to study the bill and they were "concerned with recent allegations" related to Countrywide Financial Corp CFC.N, a lender under federal investigation over its role in the U.S. mortgage crisis.

Two Democratic senators -- Connecticut's Christopher Dodd and North Dakota's Kent Conrad -- have recently acknowledged that they financed properties with Countrywide. Both have said they did nothing wrong in doing business with Countrywide.

The letter from the Republicans did not specifically mention Dodd or Conrad. But both have been the subject of news articles in recent days about their participation in a VIP loan program that was run by Countrywide.

Dodd is chairman of the Senate Banking Committee and chief sponsor of the housing bill.

Reid said the nine Republican senators' concerns about needing time to review the bill were "totally valid." He said, "I hope they and their staffs look through this."