Washington - The United States will use both private and public funds to buy up to 1 trillion dollars in toxic mortgage assets that have brought Wall Street banks to the brink of collapse, President Barack Obama's administration revealed Monday in its latest bid to end a financial crisis that has spread across the globe.

The new effort will include 75-100 billion dollars in government funds and serves as "one more critical element in our recovery" from a devastating economic crisis, Obama said in brief remarks at the White House.

The newest plan marks a massive coordinated effort between private investors and government agencies including the Treasury, Federal Reserve and the Federal Deposit Insurance Corporation to stabilize the financial sector and help banks restart lending to consumers.

"We believe that this is one more element that is gonna be absolutely critical in getting credit flowing again," Obama said after a meeting with his economic team. "But we've still got a long way to go."

Treasury Secretary Timothy Geithner, who unveiled the much- anticipated programme earlier Monday, said it was designed to lure private investors into buying up troubled mortgage loans and securities that are at the heart of the financial crisis.

Up to 50 per cent of the money put in by private investors will be guaranteed by the government, giving both sides a stake in the system's recovery. Some investment groups indicated they were prepared to join the effort and US stocks surged more than 3 per cent on the announcement.

"The Public-Private Investment Programme looks like an innovative plan from Treasury and we expect the plan could have a positive impact on the credit markets," a spokesperson for investment bank Morgan Stanley said in a statement.

Geithner said he was confident that investors would take the bait and maintained that the administration was being as aggressive as it could to stabilize a financial system that has sent the wider US economy into a tailspin.

"We're gonna do what's necessary to protect the system," Geithner said, acknowledging there was "deep skepticism" across the country over both the government and Wall Street's role in the crisis.

Yet the move comes as Geithner's political capital has dwindled amidst the widening recession and a growing firestorm over bailed-out insurance giant American International Group Inc's payment of 165 million dollars in bonuses to executives.

Investors had also complained that details were lacking when Geithner gave the first broad outline of the administration's rescue plan in early February. Some conservative lawmakers have sought his resignation, but Obama has stood by his top financial official.

The public-private plan is the latest in a series of dramatic moves by the Treasury and Federal Reserve to stabilize the US banking system and restart lending to consumers.

A separate government programme that began this month will invest up to 1 trillion dollars directly in the credit markets for small business, car and student loans, which have been largely frozen since October.

Financial firms have lost more than 1 trillion dollars in assets related to the US housing downturn, plunged many into bankruptcy and forcing others to cut lending.

The idea behind the Treasury's newest plan is to take the toxic mortgage assets entirely off the balance sheets of US banks, which could in turn restart lending to US consumers.

Administration officials hope the private role will also address another critical barrier to ending the crisis: Banks have been unable to figure out exactly how much their mortgage holdings are really worth.

Bringing investors into the process is intended to allow the market - rather than government - to help put a price on the mortgage assets, which have been plummeting in value since the US housing bubble collapsed in late 2006.

Geithner said the plan would also force private investors to take on some of the risk in nursing the US financial system back to health, rather than putting the entire burden on US taxpayers. He rejected the need for government to take on the principle share of the troubled assets.

"In a financial crisis, people always want the government to take more risk," Geithner told reporters at the Treasury in Washington. "We're trying to find a balance that's better for the taxpayer."