NEW YORK (Bloomberg) - Morgan Stanley and lenders including Bank of America Corp. said they support the Treasury's plan to partner with private investors and buy up toxic assets poisoning banks' balance sheets.

"The public-private investment program looks like an innovative plan from Treasury and we expect the plan could have a positive impact on the credit markets," said Mark Lake, a spokesman for New York-based Morgan Stanley.

Treasury Secretary Timothy Geithner outlined the administration's proposal to finance as much as $1 trillion in purchases of illiquid assets, using $75 billion to $100 billion in remaining rescue funds authorized by Congress. The programme will also rely on Federal Reserve financing and debt guarantees from the Federal Deposit Insurance Corp.

JPMorgan Chase & Co. spokesman Joseph Evangelisti called the idea an "important step", while Bank of America and Wells Fargo & Co. said they supported it and were awaiting more details.

US banks have been forced to scale back lending and raise capital to offset losses from hard-to-sell assets, which include securities linked to mortgages and other high-risk, high-yield debt.

"Clearing toxic assets off of banks' balance sheets is an essential first step if we are to turn the corner on this recession," Tim Ryan, CEO of the Securities Industry and Financial Markets Association, said in a statement.

BlackRock Inc., the biggest publicly traded US asset manager, said it will participate in the programme, and Travelers Cos., the largest US insurer by market value, is considering buying assets. The plan is "ambitious" and will probably attract private capital, said David Marchick, head of government and regulatory affairs at Washington-based Carlyle Group, a closely held private-equity firm.

Investors stopped buying assets linked to the mortgage industry after the sub-prime market collapsed in 2007, causing them to plummet in value. Sinking prices led banks and other finance companies to mark down the holdings on their balance sheets, and forced firms including Citigroup Inc. and American International Group Inc. to obtain government bailouts and post record losses.

The plan may provide bigger benefits to former securities firms such as Morgan Stanley and New York-based Goldman Sachs Group Inc., because they were required to mark assets to market values and have continued to do so since they converted to bank holding companies in September. That may make it easier to sell assets without suffering losses that would force the companies to raise new capital.

"Who can benefit from this? You're really looking at institutions that have already marked their balance sheets," said Steve Gutch, a senior portfolio manager at Federated Clover Investment Advisors in Rochester, New York. "Loans generally aren't marked to market."

Other banks may be unwilling to sell assets into the programme, because doing so would force further writedowns. Finance companies have already taken writedowns and losses of more than $1.2 trillion since the start of the capital-markets crisis in 2007, according to data compiled by Bloomberg.

"There's got to be capital relief," said David Tobin, co-chief executive officer of Mission Capital Advisors in New York. "There has to be a way for a bank to take a hit and not hit its capital today, amortise the capital hit over time."

None of the banks have said definitely that they plan to sell assets into the programme.

"It's premature to comment further on our own plans since we have yet to see all the details," Wells Fargo spokeswoman Julia Tunis Bernard said.

Shannon Bell, a Citigroup spokeswoman, and Michael DuVally, a spokesman at Goldman Sachs, declined to comment.