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The Securities and Exchange Commission is expected to propose that one of its key documents for securities offerings no longer include ratings references designed to give investors confidence in the company behind the securities offering.

The SEC's effort to extract rating references predates the financial crisis, but it lost steam when global financial markets started going into panic mode.

In 2009 the agency stripped some rating references from regulations, saying it was concerned about undue reliance on the ratings, but the removal of everything was not mandatory.

The Dodd-Frank financial law, however, changes that by requiring government agencies to go through their regulations and remove rating references.

On Wednesday, the SEC will resuscitate a similar plan it proposed in 2008, in its first move to remove ratings from its regulations since the Dodd-Frank law was enacted in July.

Credit-raters have often been blamed for helping fuel the crisis by giving overly positive ratings to loans backed by toxic subprime mortgages.

Dodd-Frank mandates some credit-rating reforms, such as mitigating conflicts of interest, holding credit-raters accountable for their ratings and reducing investor reliance on them.

But credit-raters such as Moody's Corp, McGraw-Hill Cos' Standard & Poor's, and Fimalac SA's Fitch Ratings are not facing the same sweeping overhaul as banks and mortgage lenders, largely because lawmakers could not come up with a good alternative to what they offer.

The lack of a good alternative has even caused some financial regulators to worry that Dodd-Frank goes too far, especially bank regulators who rely on ratings providers to assess the risk associated with a bank's capital.

MORE THORNY ISSUES AWAIT

The SEC's proposal on Wednesday specifically would strip rating references from a form known as an S-3, a simplified registration form designed to expedite the process for a primary offering of public securities.

A company can qualify to file an S-3 if it meets criteria that make the SEC comfortable with it's getting greater access to the public securities market.

Companies offering nonconvertible debt securities, for instance, can qualify for an S-3 filing as long as the debt is given an investment grade rating.

The SEC plans to propose stripping out that rating requirement and replacing it with an alternative.

Increased investor appetite for riskier assets was also evident in the bond market, with the five-year Japanese government bond yield climbing to a 15-month high, continuing a global trend of rising yields on government debt.

China raised interest rates by 25 basis points late on Tuesday, its second increase in just over six weeks. The timing was a surprise, coming on the final day of the Lunar New Year holiday, but investors had been expecting further tightening from Beijing to rein in stubbornly high inflation.

"Chinese policymakers' efforts to rein in overheating pressures are now seen in a relatively more positive light by global investors in that they will help slow growth to a more sustainable pace, while other engines of growth in the region begin to rev up," said Samarjit Shankar, analyst at BNY Mellon.

Mainland Chinese stocks .SSEC on their first day of trading following a week-long break, see-sawed between positive and negative territory and Hong Kong shares .HSI opened firmer before dipping into the red. .SS

Japan's Nikkei .N225 was up 0.2 percent after touching a 9-month high and Australia's benchmark index .AXJO was also up 0.3 percent. .T

But MSCI's index of Asia Pacific shares outside Japan .MIAPJ0000PUS fell 0.4 percent, weighed down by a 1 percent decline in South Korean stocks .KS11, with market players reporting weakness in firms most exposed to China and a stronger won.

"The Chinese rate hike had been expected for some time," said Lee Sun-yeb, a market analyst at Shinhan Investment Corp in Seoul. "However, investors are reacting to it be offloading issues that are sensitive to forex swings and Chinese demand."

SWITCHING FUNDS

Japan has been Asia's best performing market so far this year as healthier corporate profits and worries about building inflationary pressures have encouraged investors to switch money from fast-growing emerging markets -- last year's star performers -- to developed market equities.

The Dow Jones industrial average .DJI notched a seventh straight day of gains on Tuesday, rising 0.6 percent, as surprisingly strong sales by McDonald's boosted optimism about consumer spending.

But technical indicators show it is overbought after a strong run-up that began in September, leaving U.S. markets prone to a pullback or a correction.

While monetary policy in the rich world remains ultra-loose, central banks in emerging markets, especially in Asia, have been tightening policy to rein in inflation fueled by rising commodity and energy prices and strong domestic growth.

Higher borrowing costs in China could support Asian currencies -- generally unwelcome for the exporters that power many regional economies -- by highlighting policymakers determination to tackle rising prices.

"Looking at this rate hike from a regional perspective, it is a necessary move to curb inflation pressures in the region," said Pin Ru Tan, emerging markets forex and rates strategist at the Royal Bank of Scotland in Singapore.

Surprisingly strong sales by McDonald's boosted optimism on consumer spending and drove the Dow's gains on what turned out to be the quietest day of trading so far in 2011, with total volume about 17 percent below last year's daily average.

The light volume, "textbook wise, tells you this market is running on fumes," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York. "But that doesn't mean it can't continue."

Weakness in energy shares limited gains in the S&P 500 and Nasdaq after China, the world's second-biggest energy consumer, raised interest rates for the second time in six weeks. The move pressured commodities on fears of lower demand but had little market impact outside that sector.

"The rate hike is important, but it isn't at a critical level where it becomes troublesome," said Michael Mullaney, a portfolio manager who helps manage $9.5 billion at Fiduciary Trust Co in Boston.

McDonald's Corp (MCD.N) shares surged 2.6 percent to $75.36 after its January same-store sales beat expectations, led by a rebound in European demand. The S&P consumer discretionary index .GSPD was up 1.2 percent and was by far the top performer among S&P sectors.

"McDonald's had a really great number and is a sign that consumer spending is rebounding," Mullaney added, noting that his fund owns the stock.

The Dow Jones industrial average .DJI was up 71.52 points, or 0.59 percent, at 12,233.15. The Standard & Poor's 500 Index .SPX was up 5.52 points, or 0.42 percent, at 1,324.57. The Nasdaq Composite Index .IXIC was up 13.06 points, or 0.47 percent, at 2,797.05.

Just 6.99 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, well below last year's daily average of 8.47 billion.

In extended trading, Dow component Walt Disney Co (DIS.N) shares jumped 3.2 percent after it reported forecast-beating first-quarter earnings and revenue, as consumers traveled to its theme parks and businesses bought up ad time on its TV networks.

The S&P energy sector .GSPE was by far the weakest S&P sector, down 0.5 percent. U.S. crude for March delivery settled down 0.6 percent.

Merger activity continued for a second straight day with Kindred Healthcare Inc's (KND.N) planned acquisition of RehabCare Group Inc (RHB.N) to create a post-acute healthcare services company.

Kindred Healthcare jumped 28.3 percent to $25.00 and RehabCare soared 45.5 percent to $37.05.

On the downside, U.S.-listed shares of generic drugmaker Teva Pharmaceutical Industries' (TEVA.O) fell 5.4 percent to $52.02 after it reported results that fell short of forecasts.

Avon Products Inc (AVP.N) posted a steeper-than-expected drop in quarterly profit. Shares of the cosmetics company fell 3 percent to $28.47.

(Editing by Leslie Adler)

Prosecutors on Tuesday accused the two former employees, among four new defendants charged with insider trading, with receiving corporate secrets while working at SAC. The firm itself has not been charged with any wrongdoing.

The government has been investigating current and former SAC employees, sources have told Reuters, since prosecutors announced a huge insider trading case involving Galleon Group hedge fund founder Raj Rajaratnam in October 2009.

A number of SAC's former analysts and traders were questioned over the course of the Galleon investigation, but none had been charged in that case for their activities at the Stamford, Connecticut-based fund.

The latest charges were announced by federal prosecutors investigating ties between hedge funds and consultants for so-called expert networking firms -- businesses that match hedge funds seeking information with industry consultants.

One of the former SAC employees, Noah Freeman, agreed to plead guilty and is cooperating with the investigation, prosecutors announced Tuesday. Freeman's lawyer, Ben Rosenberg of Dechert LLP, did not return calls seeking comment.

The other former SAC employee, Donald Longueuil, was arrested Tuesday morning at his Manhattan home on charges of conspiracy and obstruction of justice.

During a brief appearance in U.S. District Court in New York, a magistrate judge approved Longueuil's release on $1.5 million bond. His lawyer, Craig Carpenito of Alston & Bird LLP, declined to comment.

SAC said it is cooperating with the government probe. A spokesman for Cohen said the high-profile hedge fund manager was "outraged by the alleged actions of two former employees" and noted SAC had fired both Freeman and Longueuil in 2010.

The government announced charges on Tuesday against two others: hedge fund manager Samir Barai and an analyst who worked at his fund, Jason Pflaum.

Barai, a former Citigroup hedge fund manager who left to launch Barai Capital Management, surrendered to FBI agents. A judge permitted his release on $1 million bond. Barai's lawyer, Evan Barr of Steptoe & Johnson LLP, declined to comment.

Pflaum has agreed to plead guilty and like Freeman is cooperating with the investigation. Pflaum's lawyer, Michael Grudberg of Stillman, Friedman and Shechtman PC, declined to comment.

Since November, prosecutors have charged more than a dozen people in this newest crackdown on insider trading in the $1.9 trillion hedge fund industry.

Tuesday's charges mark the expansion of the probe beyond expert networking firm consultants and employees to hedge fund employees suspected of receiving secret tips on technology stocks.

'VERGING ON CORRUPT BUSINESS MODEL'

The findings vindicated Toyota's position that it had identified and fixed the only known safety problems with popular vehicles like the Camry by focusing on mechanical issues with accelerator pedals and the risk that floormats could trap the pedal in the open position.

"There is no electronic-based cause for unintended high-speed acceleration in Toyotas," U.S. Transportation Secretary Ray LaHood said in a statement on Tuesday.

Toyota's U.S.-traded shares closed 4 percent higher, buoyed by the government findings and the automaker's smaller than expected dip in quarterly earnings and higher sales forecast.

The probe by National Highway Traffic Safety Administration and NASA engineers followed questions by some safety advocates and lawmakers about whether software-driven throttles and flaws with electronic control systems had also played a role in unintended acceleration complaints.

Investigators concluded that most reports of runaway acceleration could be explained by driver error.

"What mostly likely happened was pedal misapplication. The driver stepped on the gas instead of the brake, or in addition to the brake," said Ronald Medford, NHTSA's deputy administrator.

Steve St. Angelo, a Toyota executive tasked with shoring up quality after last year's recalls, said the automaker hoped the study would "put to rest unsupported speculation" about the safety of Toyota's electronics.

"We believe this rigorous scientific analysis by some of America's foremost engineers should further reinforce confidence in the safety of Toyota and Lexus vehicles," he said in a statement.

LaHood, who had touched off a panic a year ago by urging Toyota owners with concerns to stop driving them, offered a blanket endorsement on Tuesday.

"We feel Toyota vehicles are safe to drive," LaHood said, adding that he recommended to his daughter that she buy a Sienna minivan after she sought his opinion.

WINNING BACK CUSTOMERS

Although Toyota has cleared a major hurdle in its ongoing safety saga, analysts cautioned that it would still struggle to win back American consumers who have defected from the brand and its luxury counterpart Lexus.

Toyota lost ground in the U.S. market in 2010, its market share fell from 17 percent at the end of 2009 to just over 15 percent in December.

"This is certainly going to help Toyota, but it doesn't change the fact that they let these other issues through," said TrueCar.com analyst Jesse Toprak. "They're still going to face difficulties to bring people back to Toyota."