UPDATE 3-U.S. Senate panel backs Fed nominee Diamond
* Panel clears way for Senate vote on Diamond
* Republicans again raise objections
* Outlook for confirmation by full Senate murky (Adds details on Senate process)
By Emily Kaiser
WASHINGTON, Nov 16 (Reuters) - A U.S. Senate committee approved the nomination of Nobel laureate Peter Diamond to the Federal Reserve Board on Tuesday over Republican objections, sending it to the full Senate for a vote three months after it was blocked.
The Senate Banking Committee voted 16 to 7 in favor of Diamond, with all the "no" votes coming from Republicans.
Diamond, a professor at the Massachusetts Institute of Technology who was awarded the Nobel prize in economics this year, was backed by the same committee in July.
The full Senate never voted because a lawmaker used a procedural obstacle to stall the confirmation in August. Diamond was later renominated by President Barack Obama.
Republicans who have raised objections to Diamond say he lacks the necessary experience to serve on the Fed board.
Senator Richard Shelby, the top-ranking Republican on the committee, brought up a new concern on Tuesday: Diamond may not be legally qualified.
Shelby cited a provision of law that requires that no two Fed board members can hail from the same district. Both Diamond and Fed Governor Daniel Tarullo listed Massachusetts as their place of residence, Shelby said.
Senator Christopher Dodd, the Democrat who chairs the committee, dismissed that objection and pointed out that the Senate had previously approved several other nominees who did not appear to meet the residency requirement.
Diamond's fate in the full Senate remained unclear. His nomination could get stuck behind deliberations on the Bush-era tax cuts and government spending legislation, both likely to be contentious debates.
If the Senate fails to vote on Diamond's appointment during the brief "lame duck" session before newly elected lawmakers officially join in January, Obama would have to renominate him again.
Senate Democratic Leader Harry Reid, without mentioning Diamond by name, said he hoped to bring up a number of stalled nominees for confirmation votes. A leadership aide said Reid was in talks with Republicans, but that there has been no word of any agreement on the Diamond nomination.
A Republican aide said unless the nomination obtains unanticipated unanimous Senate support, allowing it to come to the floor quickly, it was unlikely the Senate would act.
Diamond, who won the Nobel for his research on labor markets, is known as a proponent of behavioral economics, which studies why people do not always make rational economic decisions.
Shelby said Diamond was "certainly a skilled economist" but that professional accolades were just one category to consider in determining whether a nominee was qualified to serve on the seven-person Fed board -- the nucleus of U.S monetary policymaking.
Although the central bank was designed to be insulated from politics, the Fed has found itself caught up in several congressional skirmishes since the financial crisis exploded in 2007. Its emergency measures to prevent the collapse of the financial system sparked criticism that it was overstepping its bounds.
Republicans have ramped up their criticism of the Fed in the past year, tapping into voter angst over bailouts. The Fed was closely involved with the forced sale of Bear Stearns and the costly rescue of insurer AIG in 2008.
One Republican lawmaker said on Tuesday he was introducing legislation that would strip the Fed of its "dual mandate" to promote price stability and full employment. [ID:nN16133970] (Additional reporting by Tom Ferraro; Editing by Leslie Adler and Dan Grebler)
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