UPDATE 1-S&P fails to convince U.S. judge to split up $5 bln fraud case

(Adds details from decision, background, byline)

April 15 (Reuters) - A federal judge on Tuesday rejected a request by Standard & Poor's to split up the U.S. government's $5 billion lawsuit accusing it of lying about its credit ratings, paving the way for a single trial in the civil fraud case.

U.S. District Judge David Carter in Santa Ana, California, nonetheless gave S&P, a unit of McGraw Hill Financial Inc , permission to seek evidence that U.S. government filed its February 2013 lawsuit in retaliation for the agency's decision 18 months earlier to take away the United States' "triple-A" credit rating.

The lawsuit accused S&P of adding fuel to the 2008 financial crisis, and causing losses for federally insured banks and credit unions, by inflating ratings to boost fees from issuers, and being too slow to downgrade debt backed by soured mortgages.

S&P had proposed holding a trial in two parts, with the first focusing on 17 of the roughly 160 securities at issue, where Citigroup Inc was alleged to have suffered losses. It said this would simplify the case for jurors and avoid a need to present "overwhelming" amounts of evidence in its defense.

But the judge said "facts that are common to all, or nearly all, of the securities" at issue underlay the government's case.

"It is true that each security will raise issues unique to particular financial institutions," he wrote. "But, the heart of each of the government's claims is that S&P engaged in a 'scheme to defraud."'

To that end, he agreed with the government that holding two trials could violate the Seventh Amendment of the U.S. Constitution, by letting different juries review many overlapping issues.

S&P fared better with its defense that the lawsuit was in retaliation for the credit rating downgrade, which the agency attributed to Washington's inability to manage the nation's debt, and interfered with its free speech rights,

Carter ruled that the government must produce documents related to S&P's so-called "selective prosecution" defense, but which are not protected by White House privilege.

U.S. officials have denied that the lawsuit and downgrade were linked, though the government did not sue S&P rivals Moody's Investors Service and Fitch Ratings over their ratings.

S&P and the U.S. Department of Justice did not immediately respond to requests for comment.

The case is U.S. v. McGraw-Hill Cos et al, U.S. District Court, Central District of California, No. 13-00779.

(Reporting by Jonathan Stempel in New York; Editing by Steve Orlofsky and Lisa Shumaker)