UPDATE 5-Senate passes jobs package, eyes next round

* Senate leader to bring up another jobs-related bill

* House may approve Senate-passed jobs bill (Effort to extend jobless benefits continues, paragraph 18)

By Andy Sullivan

WASHINGTON, Feb 24 (Reuters) - The Senate passed a modest jobs-creation bill on Wednesday and laid the groundwork for a larger package that would advance Democrats' goal of bringing down the stubbornly high U.S. unemployment rate.

By a 70-28 vote, the Senate approved a $15 billion package of tax breaks and highway spending and sent it on to the House of Representatives, which could approve the measure quickly for President Barack Obama to sign into law.

Immediately after the vote, Senate Majority Leader Harry Reid said he was readying a package of jobless benefits, state aid and tax breaks that the Senate could take up next week.

Democrats are also preparing a separate bill to boost lending to small businesses that could use money left over from bank bailout, he said.

"Today's progress is a small step forward, and an important step forward," Reid said. "We have other things in mind."

The vote provided a much-needed victory before the November congressional elections for Obama and his fellow Democrats, who say their top priority this year is to bring down the 9.7 percent unemployment rate.

The vote, in which 13 Republicans joined 55 Democrats and two independents, masked partisan tensions that had earlier threatened to derail the bill.

Among the supporters was newly minted Republican Senator Scott Brown of Massachusetts, whose surprise election last month gave his party enough seats to block Democratic legislation. On this measure, at least, he sided with Democrats.

Other Republicans said the vote did not herald a new era of bipartisanship and objected to the Democrats' tactics.

"Democrats crammed us. They didn't let us offer any amendments," said Republican Senator Kit Bond, who voted for the measure.

DIFFERENCES WITH HOUSE

The House has already passed a much larger $155 billion jobs bill, but analysts say that chamber is likely to take up the Senate version to ensure that a highway construction fund is not disrupted.

Democrats face a growing voter backlash over the aggressive spending measures they took last year to combat the worst recession in 70 years. Reid plans to pass smaller jobs bills that would avoid the sticker shock of the larger House bill and keep their job-creating efforts in the news.

But the next bill could carry a much higher price tag, possibly well north of $100 billion.

A draft circulating on Capitol Hill would extend jobless benefits and healthcare subsidies for the unemployed through the end of the year. It would extend aid to states to help pay healthcare costs, and avert a scheduled 21 percent pay cut to doctors who see patients under the Medicare health insurance program.

The draft also includes a grab bag of tax breaks for alternative fuels, research-and-development costs, and other items that expired at the end of 2009.

The bill's costs would be offset partially by closing a tax break used by paper mills.

Reid had hoped to quickly pass a short-term extension of unemployment benefits for more than a million people to ensure they are not terminated at the end of February, but Republican Senator Jim Bunning blocked it.

Democrats said they would keep working for an agreement to prevent the benefits from expiring this weekend. "I am committed to securing a long-term extension to these programs," Reid said in a statement.

Reid and other Democrats have begun to characterize as "jobs bills" other legislation not directly aimed at boosting the economy, such as the massive healthcare reform effort now stalled in Congress.

The bill passed by the Senate includes a $13 billion payroll tax break for businesses that hire unemployed workers, along with subsidies for state and local construction bonds.

It also extends the highway construction fund through the end of the year, which some Republicans have warned could lead to long-term spending increases not reflected in the legislation's official cost.

The bill's costs, other than the highway construction fund, are offset by a crackdown on offshore tax shelters. (Additional reporting by Thomas Ferraro; Editing by Xavier Briand and Chris Wilson)