WASHINGTON - THE Bush administration is planning to send the US Congress a proposal to create an institution to deal with illiquid assets plaguing world capital markets, US officials from the Treasury, Federal Reserve and Congress met Thursday to discuss a 'comprehensive approach' to rid financial institutions of bad assets at the root of the current credit crisis, Treasury Secretary Henry Paulson said.

The plan will need congressional approval, said Mr Paulson.

Mr Paulson and Federal Reserve chairman Ben Bernanke later briefed top Democrats and Republicans from both houses of Congress on the options they are considering.

'What we are working on now is an approach to deal with the systemic risk and the stresses in our capital markets,' Mr Paulson said in a brief Capitol Hill news conference, flanked by participants including House of Representatives speaker Nancy Pelosi.

'We talked about a comprehensive approach that will require legislation to deal with illiquid assets of the United States on their balance sheet,' he said of the worst Wall Street crisis since the Great Depression.

Mr Paulson did not reveal further details of the Republican administration's plan, and the Democratic Congressional leaders also said they were waiting to hear exactly how the administration planned to tackle the year-old financial crisis stemming from the collapse of the US real-estate sector.

'We look forward to working with them, and we?re anxious to see their proposal, which we hope to receive in a matter of hours, not days,' said Senate majority leader Harry Reid.

Demoncratic Senate Majority Leader Harry Reid said he expected the administration and the Fed to unveil the proposal to lawmakers in a matter of hours, rather than days.

'It will be the power - it may not be an entity - it will be the power to buy up the illiquid assets,' said Massachusetts Democrat Barney Frank.

He also said there was 'virtually unanimous agreement' that there would be legislation to create such a power.

Earlier reports said the talks were aimed at creating an entity similar to the Resolution Trust Corp (RTC) used to bail out troubled savings and loans in the 1980s and 1990s.

Such an entity would buy up banks' troubled mortgages and mortgage-related assets and sell them off later, giving the banks breathing room to start lending again and get the financial system back on its feet.

'I think we saw the best of the United States of America in the speaker's office tonight. This country is able to come together and do things quickly when it needs to be done for the good of the American people,' Mr Paulson said.

The Treasury secretary, a former president of Wall Street investment bank Goldman Sachs, said the bipartisan group was working toward a swift decision.

'We're coming together to work for an expeditious solution, which is aimed right at the heart of this problem, which is illiquid assets on financial institutions' balance sheets,' he said.

Treasury spokeswoman Brookly McLaughlin said the officials agreed to explore 'all options, legislative and administrative, and expect to work through the weekend with Congressional leaders to finalise a way forward.'

Ms Pelosi said Congressional leaders from both parties 'were listening to what the administration has to say, hoping that we can work together, realising that we must have a solution that meets the needs of the American people.'

Mr Bernanke said: 'We look forward to working closely with Congress to resolve this financial crisis and get our economy moving again.'

Central banks pumped more than US$300 billion (S$431 billion) into the roiling global banking system earlier on Thursday in an attempt to soothe financial markets.

Yet that massive injection failed to calm investors' nerves through much of the volatile Wall Street session.

It was not until reports of the talks on creating a new US government entity to rescue embattled financial firms that Wall Street found direction: a great cheer from investors in a huge late-session rally that drove the Dow Jones industrial more than 400 points higher.

US President George W. Bush huddled earlier on Thursday with Mr Bernanke and his senior economic advisors to discuss 'the serious conditions in our financial markets,' White House spokesman Tony Fratto said.

Before that meeting, Mr Bush vowed that his administration would meet the challenges of the financial crisis.

'As our recent actions demonstrate, my administration is focused on meeting these challenges,' he said.

Mr Bush had not spoken about the crisis since Monday, when the venerable Wall Street investment bank Lehman Brothers filed for bankruptcy protection after the government refused to rescue it.

The government then on Tuesday bailed out insurance titan AIG, providing it with US$85 billion in loans in exchange for an 80 per cent stake in the firm. -- AP, AFP, REUTERS