The mutual fund industry's argument that new money-market fundrules would hurt companies, states and cities that sell short-termdebt has been contradicted in a new Securities and ExchangeCommission study.

Should new rules shrink money funds, non-financial companieswouldn't be significantly affected because they don't lean heavilyon the funds, while banks are well suited to find alternativefunding, according to the report prepared by SEC staff for three commissioners. Thereport also said a reduction in demand by money funds wouldn'tnecessarily cause a drop in demand for short-term debt.

“Given the supply of very short-term securities is likely to belimited to the same securities in which money funds currentlyinvest, shifts in investor capital are likely to increase demandfor these same assets, reducing the net effect on the short-termfunding market,” the report said.