Stock investors banking on toxic-asset plan

By Deepa Seetharaman

NEW YORK (Reuters) - Wall Street's attempt to recover further from 12-year lows faces its biggest test yet next week in the Treasury's long-delayed bank rescue plan.

Details of the Treasury Department's much delayed plan to sop up banks' toxic assets are expected early next week, ahead of a key G20 meeting in early April.

"There needs to be a well-designed and credible plan so that this problem is fixed," said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey.

Analysts herald the toxic-asset plan as integral to jolting the recession-hit economy at a time when unemployment and jobless claims notch multi-year highs.

The weakness of the economy will likely be highlighted by reams of economic data, including sales of new and existing homes, a final reading on fourth-quarter gross domestic product and weekly jobless claims.

Indications on the consumer's state of mind may come from quarterly results from closely watched names such as electronics retailer Best Buy Co (BBY.N) and an expected wave of pre-announcements about earnings, as well as a final reading on March consumer sentiment and a report on February personal income and consumption.

Still, the bank plan more than any other factor probably will be in the forefront of investors' minds.

"Pretty much everything else is going to be background noise to the core issue: confidence in banks," said Eric Kuby, chief investment officer for North Star Investment Management Corp in Chicago.

ALL ABOUT BANKS

Stocks rose in the past week, emboldened by news that the Federal Reserve would take bold steps to expand its balance sheet and purchase mortgage-backed securities. Still the Fed move underscored the extent of the economy's weakness and worries over unintended consequences of the central bank's decision, which spurred a sell-off late in the week.

For the week the Dow gained 0.75 percent and the S&P 500 added 1.58 percent, while the Nasdaq climbed 1.80 percent.

Next up in the aggressive campaign to resuscitate the economy is the toxic-asset plan, known as the Public Private Investment Fund, or PPIF -- first proposed last month in only very broad terms by U.S. Treasury Secretary Timothy Geithner.

Some government officials have said the plan could be modeled on the Fed's $200-billion Term Asset-Backed Securities Loan Facility, known as TALF.

But the lackluster reception of the first TALF auction on Thursday suggests there will be challenges for the bank recovery plan. Additionally, lobbyists said the drama over bonuses for workers at American International Group (AIG.N) is prompting private investors to hesitate about participating in the program.

Funding for the bank plan and the pricing of those bad assets are key issues that investors will be keen to get more details on, Praveen said.