NEWS

WASHINGTON, April 22 (Reuters) - The U.S. Senate on Thursday blocked a White House-backed bill to compensate asbestos victims from a multi-billion-dollar national fund, but leaders of both parties said talks would continue in search of a compromise.

The action on a procedural vote disappointed Republican sponsors who want to rein in hundreds of thousands of asbestos lawsuits they say are crippling businesses.

It also marked another failure in a broad Republican effort favored by President Bush to make changes in tort law. Other bills recently barred by the closely divided Senate would have capped malpractice damages and curbed class action lawsuits.

Democrats say they are interested in an asbestos compensation fund, however, if it is fair to people who have been sickened by asbestos. Their main criticism of the bill was that the proposed fund of up to $124 billion was inadequate.

Hours after the vote barring the measure, Senate Republican Leader Bill Frist and Senate Democratic Leader Tom Daschle announced they were both committed to a solution and that negotiations would be re-launched on Monday, including representatives of business, labor and insurers.

But Utah Republican Sen. Orrin Hatch, who sponsored the bill with Frist, said time was short in a busy election year.

"If we don't get that (consensus) done in another week, it seems to me that this bill is going to be dead," Hatch said. There is no comparable legislation in the House, which has been letting the Senate take the lead on the issue.

The proposed asbestos fund would be financed by asbestos defendants and insurers. Democrats say the fund in the bill they voted to block would total only $109 billion -- about one-third of what some estimates say is needed, Daschle said.

"Republican sponsors are insisting on compensation levels which are far below what they (asbestos victims) deserve ... It reflects only what the companies who made them sick are willing to pay," said Massachusetts Democrat Sen. Edward Kennedy.

Asbestos was widely used for fireproofing and insulation until the 1970s. Scientists say inhaled fibers are linked to cancer and other diseases.

Companies have paid an estimated $70 billion on some 730,000 asbestos personal injury claims, making it the most expensive type of litigation in U.S. history, according to the RAND Institute for Civil Justice.

Frist and Daschle said next week's talks would be mediated by Edward Becker, a judge who has led past talks between labor, business and insurers over details of an asbestos fund.

Hatch has sought for over a year to build a consensus on an asbestos fund. But on Thursday he could only muster 50 votes for bringing the bill to the floor, when 60 votes were needed. Forty-seven senators voted against on a near-party line vote.

Some Democrats agree with the fund approach in principle, but called the bill a "bailout" for companies like oilfield services giant Halliburton Co. Its pending $4.3 billion asbestos settlement would have been nullified by the bill.

Republicans alleged that Democrats are beholden to trial lawyers who can get up to 40 percent of asbestos compensation costs and are big donors to the Democratic party.

Democrats, Hatch charged, were unwilling to "deprive personal injury lawyers of their huge cash cow."