Two banks agree to auction-rate settlement with NY

NEW YORK (Reuters) - Morgan Stanley and JPMorgan Chase & Co have agreed to settlements with New York state stemming from alleged mishandling of sales of auction-rate securities, the state's attorney general said on Thursday.

Morgan Stanley has agreed to pay a $35 million penalty, while JPMorgan will pay $25 million, New York Attorney General Andrew Cuomo said. The settlements cover more than $7 billion worth of debt, he said.

Resolutions of auction-rate probes to date -- including with other banks -- will result in the return of more than $30 billion to investors, Cuomo said at a news conference.

(Reporting by Jonathan Stempel and Martha Graybow; editing by John Wallace)