June 21 (Bloomberg) -- Bear Stearns Cos. may take over about $3.2 billion of loans that banks and securities firms made to one of its money-losing hedge funds to prevent creditors from seizing more assets, according to people with knowledge of the plan.

Bear Stearns, the biggest broker to hedge funds, offered to assume the loans after Merrill Lynch & Co. took assets that backed $850 million in credit lines, said the people, who declined to be named because the proposal is confidential. Lehman Brothers Holdings Inc. and JPMorgan Chase & Co. also put some of their collateral up for sale.

An agreement between the creditors and New York-based Bear Stearns, the second-biggest underwriter of mortgage bonds, may avert a fire sale of the fund's assets. Bear Stearns has spent the past few days attempting to rescue the two hedge funds after they made bad bets on so-called collateralized-debt obligations, securities backed by bonds, loans and derivatives.

``For the sake of its reputation, Bear needs to put this behind it as soon as possible,'' said Peter Goldman, who helps manage $600 million at Chicago Asset Management, including shares of Bear Stearns. ``The firm might take on some of the risk of the fund they didn't have before, but they're a bond shop and they wouldn't take on risk they shouldn't.''

Bear Stearns spokesman Russell Sherman declined to comment.

Backing Away

Merrill today backed away from a threat to dump about $850 million of securities it seized from the hedge funds, according to people with knowledge of the firm's decision. New York-based Merrill sold a portion of the CDOs through an auction, said the people, who declined to be identified because details weren't announced.

Merrill spokeswoman Jessica Oppenheim declined to comment.

Bear Stearns's is making the offer on the High-Grade Structured Credit Strategies Fund, which lost less than 10 percent this year. A second fund, the High-Grade Structured Credit Strategies Enhanced Leverage Fund, lost about 20 percent.

The funds were hurt in March and April as CDO values dropped. Opposite bets the funds made on defaults of subprime mortgage bonds also went wrong.

Investors from hedge funds to pension funds and foreign banks have snapped up CDOs as a new way to invest in debt, making it the fastest-growing market and pushing the amount outstanding to more than $1 trillion.

CDOs trade infrequently and sales may have forced other investors to write down the values of their holdings, potentially causing billions of dollars in losses.

Bear Stearns shares, also the fifth-biggest U.S. securities firm by market value, rose for the first time in four days on optimism Merrill's decision would stave off a large sale of the assets. The stock gained $2.61 to $145.81 in New York Stock Exchange composite trading.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

Last Updated: June 21, 2007 20:32 EDT