UPDATE 2-Schwab reaches new $235 mln YieldPlus settlement

* Schwab, investors agree on revised $235 mln settlement

* Schwab had backed out of previous settlement

* Risks of YieldPlus bond fund underlay lawsuit

* Schwab shares rise 0.9 pct (Adds details from hearing, settlement details, stock price)

By Jonathan Stempel

NEW YORK, Nov 18 (Reuters) - Charles Schwab Corp (SCHW.N) said it reached a revised $235 million settlement of a lawsuit accusing the discount brokerage of misleading customers about the risks of a bond mutual fund that plunged in value.

The accord would resolve claims by about 250,000 investors in the Schwab YieldPlus fund who said they lost $970 million because of the fund's exposure to mortgage-related securities that lost value as housing and credit markets collapsed.

Schwab had withdrawn on Nov. 8 from an earlier version of the accord, saying it unfairly allowed fund investors who live outside California a chance to recover twice on their claims. The revised agreement eliminates that possibility.

Judge William Alsup held a hearing Thursday on the revised accord in the federal court in San Francisco.

The judge is expected to decide whether to approve the accord by Monday, according to spokesmen for Schwab and the law firm representing the plaintiffs, Hagens Berman LLP said.

Schwab is based in San Francisco.

The investors contended that Schwab marketed YieldPlus SWYSX.O, an "ultra-short" bond fund, as a higher-yielding but secure alternative to cash or money market funds.

Despite this, investors said Schwab invested nearly half the fund's assets in risky, uninsured mortgage securities.

They said the fund's performance suffered, in a downturn magnified by shareholder redemptions that forced Schwab to sell securities in a falling market.

After returning between 2.37 percent and 6.05 percent in every year from 2000 and 2006, YieldPlus fell 1.04 percent in 2007, 35.37 percent in 2008 and 10.52 percent in 2009, data from Morningstar Inc show.

Through Wednesday, the fund was up 0.71 percent in 2010.

The revised accord would dismiss claims by class members that could be raised under a California state business law, including those of out-of-state residents, court records show.

In October 2009, Schwab said it had received a "Wells notice" from the U.S. Securities and Exchange Commission indicating the regulator might file civil charges against the company and a fund executive in connection with YieldPlus.

Schwab shares closed up 14 cents, or 0.9 percent, at $15.18 on the New York Stock Exchange.

The case is In re: Charles Schwab Corp Securities Litigation, U.S. District Court, Northern District of California, No. 08-01510. (Reporting by Jonathan Stempel in New York; Additional reporting by Rachelle Younglai in Washington; editing by John Wallace, Gary Hill)