By David Lawder
WASHINGTON (Reuters) - Treasury Secretary Henry Paulson will meet with top Wall Street bankers on Monday in a scramble to finalize a plan for the government to buy bank shares to turn back a deep financial crisis.
The evolving plan marks a quick about-face for the United States, which until recent days had been focusing on building an apparatus to soak up bad assets from banks.
The new push could provide faster relief to a paralyzed banking system and would put the United States more in line with European actions on Monday that pledged billions of dollars to recapitalize banks or guarantee lending.
A U.S. announcement could come as early as Tuesday.
"There's still a cloud...over banks, but hopefully this will be the first rays of sunshine through the cloud," Wayne Abernathy, a policy expert at the American Bankers Association, said of the revised Treasury efforts.
Financial markets, beaten down by fears of financial sector collapse, soared on news of the globally coordinated efforts. In early afternoon trade, the Dow Jones Industrial Average rose 586 points, or nearly seven percent, after its worst-ever weekly loss of 18 percent.
Treasury officials said they were moving forward on an action plan announced on Friday with other Group of Seven wealthy economies to "improve the availability of funding for our banks."
Britain, Germany, France, Italy and other European governments on Monday announced rescue packages totaling hundreds of billions of dollars aimed at unsticking locked-up global credit markets, some of which guaranteed bank debt and others guaranteeing interbank loans.
"Treasury and the Fed are meeting today with leading financial market participants to finalize details on a financial market stabilization initiative," Treasury spokeswoman Brookly McLaughlin said on Monday.
The 3 p.m. (1900 GMT) meeting at the U.S. Treasury was expected to include executives from the largest U.S. banks.
The Wall Street Journal reported that the heads of Bank of America Corp
U.S. lawmakers, who rejected Paulson's initial plan to bail out the financial sector by purchasing banks' bad debt before passing a heavily modified version, voiced support for the shift to buying bank shares.
This "was not the original proposal but clearly there seems to be a consensus that is essentially what is necessary," said House Majority Leader Steny Hoyer.
"The economists advise us (that's) the most beneficial action that can be taken in the short term to stabilize the system," said Hoyer, a Maryland Democrat.
Earlier on Monday, the head of the Treasury's new $700 billion financial rescue program, Neel Kashkari, disclosed some details about the bank equity plan, saying it would be voluntary.
"We are designing a standardized program to purchase equity in a broad array of financial institutions," Kashkari told a banking group.
"As with the other programs, the equity purchase program will be voluntary and designed with attractive terms to encourage participation from healthy institutions. It will also encourage firms to raise new private capital to complement public capital," he added.
In closing its deal to buy a stake in Morgan Stanley, officials of Japan's Mitsubishi UFJ Financial Group Inc <8306.T> sought the Treasury's assurances that its investment would not be wiped out if the U.S. government were to invest in the Wall Street investment bank, according to people familiar with the matter.
Kashkari also said the Treasury would name asset managers in the coming days to manage mortgage-backed securities and whole mortgages purchased under the program.
"Treasury is implementing its new authorities with one simple goal -- to restore capital flows to the consumers and businesses that form the core of our economy.
Achieving this goal will require multiple tools to help financial institutions remove illiquid assets from their balance sheets and attract both private and public capital," Kashkari said.
(Additional reporting by Karey Wutkowski and Patrick Rucker; Editing by Andrea Ricci)
