Dodd's decision underscores Democrats' vulnerability

WASHINGTON (Reuters) - U.S. Senate Banking Committee Chairman Christopher Dodd's decision not to seek reelection highlights the vulnerability of President Barack Obama's Democrats in this election year -- particularly as they push for passage of landmark healthcare and financial regulatory reform.

Dodd has been a key player in seeking to revamp the U.S. healthcare industry and overhaul the regulation of the financial industry. His decision not to seek a sixth term -- confirmed by senior Democratic Party aides -- means the veteran Connecticut senator will be transformed from a powerbroker to a lame duck lawmaker with less influence and clout.

Dodd's impending departure from the Senate comes in the wake of another senior Senate Democrat, Byron Dorgan, announcing on Tuesday that he won't run for reelection in November. The dual actions have rocked Democrats while heartening Republicans as they eye next November's elections. At this point, congressional analysts figure Republicans will gain seats in both the Senate and House of Representatives but that Democrats will retain control of both chambers.

Dodd had long been seen as among the most vulnerable Senate Democrats up for reelection this year. If Democrats lose just one Senate seat, they will lose the super Senate majority that enables them to pass legislation without a single Republican vote. Yet there have been plenty of differences within the 60-member Senate Democratic Caucus that has prevented them from moving on a number of issues. They passed a sweeping healthcare bill last month, but still face the task of approving a final version of it after a compromise is reached with House Democrats.

With Dodd out of the Senate race, Democrats' chances of holding his seat may actually improve. Connecticut State Attorney General Richard Blumenthal, a popular political figure, may enter the contest. He had been reluctant to do so while Dodd was in the race.

Dodd, a member of the Senate since 1980, is a political centrist. He has long-standing ties to Wall Street, having raised millions of dollars in campaign contributions over the years from employees of firms such as Goldman Sachs and Citigroup, many of whom go home to Connecticut from New York City every night. How he now handles the regulatory reform legislation that he drafted will help shape his legacy.

Dodd won a fifth term in 2004 with 66 percent of the vote. But his political stock plunged in Connecticut in recent years, beginning with a failed run for the 2008 Democratic presidential nomination. His image was further tattered when questions arose about whether he had received preferential treatment from a mortgage lender. In August, the Senate Ethics Committee said it found no credible evidence of any ethics violations. But it said Dodd should have exercised greater care to avoid even the appearance of any impropriety.

(Reporting by Thomas Ferraro; Editing by Paul Simao)