* Republicans accuse Democrats of election-year politics
* Obama had urged the Senate to approve bill
* Reid suggests cooling off period (Updates with possibility of vote next week)
By Donna Smith
WASHINGTON, July 29 (Reuters) - U.S. Senate Republicans blocked a $30-billion plan to help community banks boost lending to small businesses, dealing a blow to President Barack Obama's election-year battle to reduce unemployment.
Tempers ran high as Democratic leaders failed to muster the 60 votes needed to advance the measure over Republican objections. Republicans were upset that Democrats shut them out from amending the package that also includes about $12 billion in tax breaks for small businesses.
"Enough is enough. This has been anything but a jobs agenda," said Republican Senator Olympia Snowe. The Maine moderate has voted with Democrats on some issues, most recently to extend jobless benefits to the long-term unemployed. This time she stuck with her party and voted to block the small business bill from advancing toward passage.
EVERYBODY COOL DOWN
Senate Majority Leader Harry Reid early in the day expressed frustration at the impasse, but late on Thursday held out hope that a deal could be reached sometime soon that would allow the Senate to act on the bill next week.
"Lets take a little time over the next couple of days, kind of cool down," Reid said.
Even if the Senate passes the small business lending bill next week, it will be too late to get it to Obama's desk before mid-September. The House of Representatives, which passed its version of the bill in June, is set to begin a six-week break on Friday. The House will be unable to vote on the version passed by the Senate until then.
Senate Republican Leader Mitch McConnell had accused Democrats of playing election-year politics and complained about billions of dollars in spending added to the package.
By late Thursday, though, he was sounding more optimistic
"I think we are making some real headway here," McConnell said. Some Republicans support the plan to inject capital into community banks in a voluntary program that backers say could mean as much as $300 billion in loans to small entrepreneurs.
Obama twice this week called for the Senate to pass the bill. He wants to show Americans he is focused on job creation, mindful that voter anxiety over the lackluster economy and the 9.5 percent unemployment rate could translate into big losses for his Democratic Party in November congressional election. Small businesses account for a significant portion of job creation in the United States.
An earlier Democratic effort to pass a jobs package that included money for cash-strapped states and extended some expired individual and tax breaks was also blocked in the Senate by Republicans who argued that the extra spending should be covered by cuts elsewhere in the budget.
Senate Democrats are making another push to provide $10 billion in education funding to states and $16 billion to help with the Medicaid health program for the poor. Reid filed a separate bill on those measures and a procedural vote is set for Monday.
OBAMA PUSHED FOR THE LENDING BILL
Obama has been pushing for passage of the lending measure arguing that getting more capital into the hands of independent community bankers would lead to more small business loans. It is supported by independent bankers and business groups.
Since the 2008 financial crisis, small businesses have found it difficult to obtain loans that would help them expand as the economy recovers from the recession.
Many business owners are also worried about costs associated with Obama's healthcare overhaul and fear they will face higher taxes if Obama keeps a pledge to let President George W. Bush's tax cuts for wealthier income groups expire as scheduled at the end of 2010.
Some Republicans have cast the small-business proposal as part of what they consider government overreach by the Obama administration.
"While I support the bill's tax incentives for America's job-creating small businesses, I can't support creating yet another lending fund that turns the Treasury Department into our national bank," said Republican Senator Lamar Alexander.
(Reporting by Donna Smith; Editing by David Storey and Jackie Frank)