WASHINGTON (Reuters) - Senate Democratic leaders and the White House are trying to reach a deal on two of President George W. Bush's three stalled nominees to the Federal Reserve Board, congressional aides said on Thursday.

An initial Democratic proposal was rejected and talks temporarily broke down, but discussions resumed late in the day, aides said. Bush's fellow Republicans in the Senate were also involved.

An announcement could come as early as Friday on a package of nominations to the Fed, the Justice Department, Securities and Exchange Commission and State Department, aides said.

Two seats on the normally seven-person Fed Board of Governors are currently vacant, and Fed Governor Frederic Mishkin has said he will step down, effective August 31. The Fed helps oversee U.S. banks and set monetary policy.

Democrats offered to allow Bush to make two recess appointments to the Fed during Congress' July 4 break that begins on Friday, aides said. Such appointments would run through 2009.

But the White House refused, demanding instead Senate confirmation of two of his nominees -- banker Elizabeth Duke and financial services executive Larry Klane.

Some analysts have expressed concern that the Fed may be strained with its staff trying to address an economic slowdown, mounting inflation, a credit crunch, and cracks in the supervision of financial companies.

Negotiations on package of nominees had temporarily broken down because of an impasse over Fed nominees.

Bush nominated Duke and Klane to fill the two vacancies in May, 2007. He also nominated Fed Governor Randall Kroszner, whose term has expired but who may remain in office until a successor takes office. The Democratic-led Senate has refused to confirm any of them to full terms.

Fed Chairman Ben Bernanke "has been pushing for some deal on all of them," a congressional aide said.

Under the offer rejected by the White House, Democrats would have recessed the Senate next week to permit the president to make the two temporary appointments, aides said.

In return, Democrats wanted Bush to promise not to make any additional recess appointments during the remainder of his term that ends in January.

Bush has made several appointments over Democratic objections during his years in office. Democrats stopped the practice when they took control of the Senate in 2006 by no longer recessing the chamber.

Instead, during various breaks and holidays, they have opened the Senate every few days for a brief, non-voting session attended by only one of their members.

This has allowed them to avert a formal recess and prevent Bush from making appointments without Senate approval.

(Editing by Alan Elsner)

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