By Andy Sullivan

WASHINGTON (Reuters) - A Senate committee appeared set on Thursday to pass a controversial measure that would limit the way businesses could use customers' personal information, until it was delayed by a parliamentary maneuver.

The Senate Commerce Committee voted to approve several changes to the bill, which is designed to increase Internet privacy by limiting how businesses use phone numbers, purchase records and other data collected through their Web sites.

But a final vote to send the bill to the full Senate was blocked by Mississippi Sen. Trent Lott, the Senate's top Republican, who invoked an obscure parliamentary rule that can prohibit a committee from taking action two hours after the Senate convenes.

The move drew objections from committee Chairman Sen. Ernest Hollings, the South Carolina Democrat who sponsored the bill, and Arizona Sen. John McCain, the committee's top Republican.

"This was an underhanded way to try to defeat the online privacy bill," Hollings said in a statement.

A Hollings spokesman characterized the move as a minor delay and said the committee planned to finish work on Friday.

A Lott spokesman did not return repeated calls for comment.

Staunchly opposed by much of the high-tech industry, the bill would require online businesses to get customer permission before collecting or sharing sensitive personal information like income level or religious affiliation. Less sensitive information, such as purchase or browsing records, could be shared with outside firms unless the customer specifically says otherwise.

"What we are proposing simply codifies businesses' best practices on the Internet," Hollings said.

Consumer groups and many Senate Democrats say the bill would encourage online commerce by inspiring greater consumer trust, but high-tech businesses say it would hurt their Internet operations because offline "bricks and mortar" operations would not be subject to the same restrictions.

LAWSUIT REWARDS LOWERED

The committee changed the bill on Thursday to require the Federal Trade Commission to develop privacy rules for offline businesses as well and, in another nod to business concerns, reduced the maximum amount consumers could win for privacy violations from $5,000 to $500.

The committee also voted to exempt small businesses and provide some protection for companies who participate in a privacy self-regulation scheme like BBBOnLine or TRUSTe.

Several Republicans on the committee said consumer lawsuits would expose businesses to a wave of class-action lawsuits, but an effort to strip out the consumer-lawsuit provision by Virginia Republican Sen. George Allen failed to win approval.

McCain said the bill was too hard on businesses, and predicted that it will have a tough time clearing the Senate.

"If the bill were passed out of the committee in its present form, it would have difficulty receiving consideration on the floor of the Senate," he said.

In the House of Representatives, Florida Republican Rep. Cliff Stearns has introduced a bill that would allow businesses to trade personal information unless consumers said otherwise. Stearns' bill would not allow consumers to sue if their privacy were violated.