UPDATE 3-U.S. SEC proposes tough rules for money market funds

* SEC proposes to cut debt maturity to 60 days from 90

* Second tier securities cut from funds under proposal

* Periodic stress tests would be required

* Commissioners spar over use of credit rating agencies

* Funds would have to hold min 5 pct highly liquid assets (Recasts with vote, adds comments from Aguilar, Paredes, further detail on redemptions, second tier assets)

By Rachelle Younglai

WASHINGTON, June 24 (Reuters) - U.S. securities regulators proposed tough new rules for money market funds to help avoid a repeat of what happened when the collapse of the Reserve Primary Fund triggered a wave of redemptions in the $3.67 trillion market.

Money market funds were long considered as safe as cash until the collapse of Lehman Brothers Holdings (LEHMQ.PK: Quote, Profile, Research) last fall pushed the value of the Reserve Fund below $1 a share, forcing the creation of a government program to backstop the market.

The Securities and Exchange Commission unanimously voted for a proposal that prohibits money market funds from buying illiquid securities and requiring them to hold at least 5 percent in liquid securities such as cash.