* EU lawmakers mull set dates for govt. debt ratings
* UK FSA doubts agency switching will boost competition
* Reducing over-reliance on ratings seen as key
By Huw Jones
LONDON, Feb 29 (Reuters) - Banning credit ratings on European Union sovereign debt would be a step too far and fail to row back the financial sector's heavy reliance on ratings, EU lawmakers said on Wednesday.
"Once we have dealt with this problem of over-reliance on ratings, much of the problem has been dealt with," Jean-Paul Gauzes, a French centre-right member of the European Parliament's economic affairs committee said.
Banks use ratings to calculate the size of their mandatory safety buffers and rate the financial products they offer investors. Mutual funds sell assets whose ratings drop below a certain level, triggering sharp market moves.
EU states and parliament are approving a draft law to boost competition in the "oligopolistic" sector dominated globally by the "Big Three": Standard & Poor's, Moody's and Fitch.
Italian centre-left lawmaker Leonardo Domenici, charged with finding consensus in parliament, wants to go further and introduce a ban on unsolicited credit ratings on sovereign debt.
Some EU politicians accuse rating agencies of making it harder to mount rescue packages for Greece by downgrading the country's debt at a sensitive time.
"Should we have prohibition on unsolicited sovereign ratings? I don't think that is realistic. We have ratings by all and sundry all the time," Gauzes said.
Instead, there could be set days of the year for publishing ratings on government debt, he added.
Olle Schmidt, a Swedish Liberal member of the committee, agreed: "A ban on unsolicited sovereign debt ratings? Don't want that."
Green Party member Pascal Canfin of France said rules must not be too specific. "Anything we can do to reduce that dependency is good," he said.
A ban on unsolicited sovereign ratings, which is not in the original draft law, is also expected to be opposed by several EU states like Britain as well.
"It's complete nonsense. Such a ban will not help the market operate. More likely it will help it to be destabilised," said Ashley Fox, a UK centre-right member of the committee.
Users would also be required to rotate or switch to another agency after a fixed number of years in a bid to boost competition, a step Schmidt opposed, along with the market share caps that Domenici has aired.
At a separate hearing in the UK parliament's treasury committee on the draft law, David Lawton, head of markets at the Financial Services Authority, doubted if rotation would increase competition and if the smaller agencies have the resources to compete with the Big Three.
"The public policy challenge is to work on reducing the mechanistic reliance on ratings," Lawton said.
"It's unlikely we will get to a situation where they play no role but they need to be just one of a number of indicators of creditworthiness," Lawton added.
Rating agencies in the EU are supervised by the European Securities and Markets Authority whose chairman Steven Maijoor told the UK committee that new competitors may also come from other sectors like auditors.