Banking chief Dodd to leave Senate

WASHINGTON (Reuters) - Veteran Democratic Senator Christopher Dodd said on Wednesday he will not seek re-election in November in recognition that he faced an uphill battle and underscoring upheaval facing President Barack Obama's Democrats.

Dodd, 65, chairman of the Senate Banking Committee and leader of a financial regulations overhaul in the Senate, has been dogged by questions over his financial industry connections and was trailing badly in polls in his home state of Connecticut.

Wall Street was looking for clues as to how hard Dodd, in his remaining year in office, would push for a financial regulation revamp that banking lobbyists and Republicans are fighting. The White House said Obama spoke to Dodd and believes he will continue efforts to pass the overhaul.

"Knowing Senator Dodd and the passionate advocate that he is, I think he will continue to work hard and want to get this done by the end of the year, as the president does too," said White House spokesman Robert Gibbs.

Benny Lorenzo, CEO of Kaufman Bros., a boutique investment bank and advisory firm in New York, said Dodd's move could "free him to be more assertive" in seeking regulatory changes.

Dodd's announcement followed by one day the surprise announcement by Democratic Senator Byron Dorgan that he would not seek re-election in North Dakota.

Dodd, speaking at his home in East Haddam, Connecticut, said he found himself in the "toughest political shape of my career."

While insisting it was "absurd" to write him off in November, "Ultimately, I came to the conclusion that in the long sweep of American history, there are moments for each elected public official to step aside and let someone else step up."

"This is my moment to step aside," he said.

Dodd is giving way to an expected bid for his seat by Connecticut Attorney General Richard Blumenthal. Republicans conceded that Democratic chances will improve with Blumenthal in the race.

Two Senate Democratic sources indicated that South Dakota Senator Tim Johnson is in a strong position to take Dodd's place next year as chairman of the Banking Committee.

Johnson has been on the mend from a brain hemorrhage three years ago and won a third six-year term in 2008 with 63 percent of the vote.

PERSONAL DECISION

A Senate Democratic leadership aide said Dodd's decision not to seek re-election was a personal one that he reached without prodding from other party members.

Dodd thanked voters for their confidence over the years and acknowledged their doubts, noting "there have been times when my positions and actions have caused some of you to question that confidence."

Dodd's departure will leave a large hole. Besides financial regulations, he has had a lead role in pushing Obama's healthcare agenda and has backed an uphill battle to win passage of legislation to stem global warming.

"While his work in the Senate is not yet finished, his leadership in that institution will be missed," Obama said in a statement.

The party that holds the White House usually loses congressional seats in the first election after a new president takes power, and public opinion polls indicate this could happen again as Americans express frustration at the weak U.S. economy.

Democrats are trying to hang on to strong majorities in the Senate and House of Representatives in 2010 congressional elections and many pundits predict Republican gains.

Jennifer Duffy, who tracks Senate races for the nonpartisan Cook Political Report, said having two veteran Democratic senators announce they will not seek new terms within 24 hours of each other "dealt a psychological blow" to their party.

But Duffy said the dual actions may prove to be somewhat of a wash on Election Day -- Democrats hanging on to the Connecticut seat while dropping the North Dakota one.

UPHILL FIGHT

Dorgan announced on Tuesday that he would not seek re-election. Polls showed that like Dodd he also faced an uphill fight in November, when voters will elect 38 of the 100 senators and all 435 House members.

Republicans are facing their own struggles, led by a conservative rebellion against moderates, which could limit their ability to mount an electoral earthquake as they did in 1994 in the first election after Bill Clinton took office.

Dodd has been at the pinnacle of his power, but has been buffeted by charges that he benefited from a low-interest mortgage loan at a time when many Americans were facing home foreclosures.

Rivals have hammered the white-haired Dodd, a 35-year veteran of U.S. politics, over his connections to the financial industry and two mortgages he got in 2003 from Countrywide Financial Corp, once the country's largest home lender that was acquired by Bank of America in 2008.

(Additional reporting by Angela Moon in New York and Richard Cowan and David Morgan, editing by David Alexander and Vicki Allen)