UPDATE 1-Merrill reaches tentative deal with SEC over ARS

(Recasts with state deals, adds detail on settlement amount, context)

WASHINGTON, Aug 22 (Reuters) - Merrill Lynch & Co Inc MER.N struck a deal with the U.S. Securities and Exchange Commission to buy back billions of dollars of auction-rate securities, in a settlement little different from one the bank reached a day earlier with several states.

Merrill agreed to buy back $7 billion of untradable debt instruments from investors, small businesses and charities who bought them from the bank, the SEC said on Friday .

The figure excludes ARS that have already been redeemed by the issuer, such as a municipality, according to an SEC official. That explains the difference between the SEC amount and the $10 billion to $12 billion in the agreement announced by New York State Attorney General Andrew Cuomo on Thursday.

The deals are part of an industry-wide investigation by state and federal regulators into the debt securities, which offer interest rates that reset periodically. Auctions began to fail earlier this year, and government officials accused banks of misleading clients by marketing them as safe and liquid.

Deutsche Bank AG (DBKGn.DE) and Goldman Sachs Group Inc (GS.N) also agreed to buy back billions of dollars of securities in the agreement announced Thursday.

The SEC deal -- which officials called tentative, subject to the prospect of a financial penalty and finalization of terms -- also requires Merrill to make its best efforts to provide liquidity for $1.5 billion of the securities held by business and institutional customers.

On Thursday, Cuomo said Merrill agreed to pay a $125 million fine, the second-highest after UBS's $150 million among banks that had settled so far, and agreed to buy back between $10 billion and $12 billion in ARS from individual investors.

Merrill on Thursday neither admitted nor denied allegations of wrongdoing as part of that agreement and said it would compensate individuals who sold the securities at a loss between Feb. 13 and the date of the deal.

Citigroup Inc (C.N), JPMorgan Chase & Co (JPM.N), Morgan Stanley (MS.N), UBS (UBSN.VX) and Wachovia Corp WB.N had previously settled with the New York attorney general. (Editing by Andre Grenon, Gary Hill)