(Reuters) -Shares of Circle Internet jumped 16% in morning trading on Wednesday after the U.S. Senate approved a milestone stablecoin bill, fueling hopes for broader adoption of what was once a niche corner of the crypto sector.

A rare show of bipartisan support marks a turning point in the fractured debate over crypto oversight, and a breakthrough for a sector long stuck in regulatory limbo.

Circle, the issuer of the second-largest stablecoin by market value, went public earlier this month in a blowout debut on the New York Stock Exchange. Its shares were last at $173.60, versus IPO price of $31.

The company's flagship USDC stablecoin has a market value of around $61.4 billion, according to data from CoinGecko.

The tokens have gained traction for offering crypto's convenience without its volatility. Pegged to currencies like the U.S. dollar, they aim to hold a stable value backed by reserves.

The Republican-controlled House of Representatives must pass its version of the bill, known as the GENIUS Act, before it heads to President Donald Trump for approval.

"Once passed into a law (likely the end of summer), we expect stablecoins to evolve from the money rail of crypto to the money rail of the internet," analysts at brokerage Bernstein said.

Proponents say by setting clearer rules for issuing and managing dollar-pegged tokens, the bill could bring greater legitimacy to the sector. Several high-profile corporates are also reportedly exploring launching their own stablecoins.

If signed into law, stablecoins will have to be backed by liquid assets - such as U.S. dollars and short-term Treasury bills - and for issuers to publicly disclose the composition of their reserves on a monthly basis.

"Stablecoin adoption could also serve as a strong tailwind for major cryptocurrencies like bitcoin," analysts at brokerage KBW said.

Stablecoins account for roughly $256 billion of the crypto sector's total $3.3 trillion market value, according to CoinMarketCap data.

(Reporting by Manya Saini in Bengaluru; Editing by Arun Koyyur)