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(Reuters) - Connecticut's attorney general announced Friday that he had reached a settlement with the three major credit-rating agencies over allegations that they underrated public bonds compared with their corporate counterparts.

The deal ends a three-year battle between Connecticut and the agencies over the rating of public bonds.

It requires Moody's Investors Service, Inc, part of Moody's Corp; Standard & Poor's, a unit of McGraw Hill; and Fimalac SA's Fitch to pay roughly $900,000 to the state to defray the cost of securing future credit ratings on sales of state bonds.

Connecticut sued the agencies in July 2008, accusing them of violating the state's unfair trade practices law by assigning lower ratings to public bonds compared with corporate debt.

The lower ratings forced cities, towns and school districts to pay higher interest rates on the bonds or purchase unnecessary bond insurance to improve their ratings, the suits said.

In addition to seeking monetary damages, Attorney General George Jepsen said the actions sought to make sure the agencies clearly defined the meaning of their rating symbols and applied the symbols consistently across all securities. These are now requirements of the Dodd Frank Act, which was enacted by Congress in July 2010.

The settlement does not extend to separate suits Connecticut brought in 2010 against Moody's and S&P over claims they misrepresented the analysis of structured finance securities.

Moody's and Standard & Poor's did not immediately return calls for comment.

A spokesman for Fitch said in a statement that the settlement "reflects our strong belief that Fitch's ratings were fair and transparent."

(Reporting by Noeleen Walder; Editing by Gary Hill)

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