The U.S. government is making a big move away from its original plan to use a $700-billion US bailout fund to buy up illiquid assets at financial institutions.

Treasury Secretary Henry Paulson said Wednesday that the government is now looking at ways to use the money to encourage private investment in the lending market for credit in areas such as credit cards, car loans and students loans. He said about 40 per cent of all U.S. consumer credit comes through that market.

"This market, which is vital for lending and growth, has, for all practical purposes, ground to a halt," Paulson told reporters in Washington.

When the huge bailout plan was originally unveiled, the U.S. government planned to use the money in the Troubled Asset Relief Program to take illiquid assets, such as mortgages in default, off the books of lenders.

However, the government has decided that method is "not the most effective way" to use the money, Paulson said.

The government has allocated about $250 billion from the bailout fund for direct injection into banks through purchase of their stocks.