UPDATE 1-Schumer says broad support for capital injections

(Adds Schumer comments)

WASHINGTON, Oct 13 (Reuters) - A leading Senate Democrat said on Monday that there is "broad, bipartisan support" for the U.S. Treasury's decision to shift the focus on the $700 billion bailout bill from buying troubled assets to directly injecting capital into financial firms.

Sen. Charles Schumer, the New York Democrat who chairs the Joint Economic Committee, said he is sending a letter to U.S. Treasury Secretary Henry Paulson applauding the injection plan, but proposed key steps to refine the plan.

"You can't make it too sweet, but you can't make it too sour," Schumer said.

He said firms participating in the capital injections should significantly cut or suspend dividend payments, should restrict executive compensation, and should focus on standard types of lending rather than exotic instruments.

He also said the government should get preferred, not common, stock in exchange for the capital infusions because he "would like to see government come first."

Paulson said on Friday that the U.S. government was developing plans to buy equity stakes in financial institutions alongside purchases of distressed assets as a way to recapitalize U.S. banks and other institutions.

The Treasury and Federal Reserve were working on Monday to finalize the details on a plan, and plan to meet with top banking executives on Monday afternoon.

"They're going to take their temperature and see what the institutions want," Schumer said about the meeting.

Schumer, the New York senator who often has the ear of Wall Street, said banks would be excited to participate in the plan despite possible restrictions on pay and dividends.

"I think this is going to be a program that, if structured well, that banks would want to participate in," he said.

Schumer said Paulson was originally opposed to the focus of the bailout being capital injections, instead believing that auctions to buy up banks' distressed mortgage-related assets would provide quicker relief.

He said that sentiment shifted after policymakers realized how long it would take to get the auctions running for complex financial instruments.

Capital injections can be done more quickly and are more effective at getting firms back on their feet, Schumer said.

"One of its advantages is that it's cheaper. You get more bang for your buck. Capital can be leveraged," Schumer said. "It allows more troubled assets to be disposed of for fewer federal dollars." (Reporting by Karey Wutkowski, editing by Leslie Gevirtz and Gerald E. McCormick)