U.S. Senate rejects GOP's Fannie, Freddie plan

WASHINGTON May 11 (Reuters) - The U.S. Senate on Tuesday voted to reject a Republican measure that would have moved housing finance giants Fannie Mae FNM.N and Freddie Mac FRE.N out of government conservatorship within two years.

The measure was offered by Republicans John McCain, Richard Shelby and Judd Gregg as an amendment to a sweeping Democratic financial reform bill that does not deal decisively with the problem of what to do about Fannie and Freddie.

"You cannot have responsible reform of financial services and leave out Freddie and Fannie," said Republican Senator Johnny Isakson in Senate floor debate on the amendment.

The Senate approved a Democratic measure calling for a study of housing finance reform, due by Jan. 31, 2011.

Democrats said the Republican amendment, lacking an alternative proposal for structuring housing finance, could have upended the home market just as it was stabilizing. (Reporting by Kevin Drawbaugh)