TOKYO (AP) _ Japan's largest bank, looking to speed its bad loan cleanup, is nearing an agreement with Merrill Lynch & Co. for more than a billion dollars in funding, a Japanese newspaper reported Tuesday.

Under the plan, Mizuho Holdings Inc. would receive 150 billion yen ($1.25 billion) in exchange for new shares issued to Merrill Lynch, the national Sankei newspaper said. The report didn't cite sources and didn't specify when an agreement would be reached.

A Merrill Lynch spokesman in New York declined to comment. Mizuho officials could not be reached Tuesday, a national holiday in Japan.

If a deal is reached, it would be Merrill Lynch's second investment in a major Japanese bank, reflecting a shift in tactics for the U.S. firm, which announced huge cutbacks of its staff and brokerage offices in Japan last summer.

In December, Merrill Lynch agreed to help UFJ Holdings clear some of its bad debts with a 100 billion yen ($831 million) investment.

Another Japanese megabank, Sumitomo Mitsui Financial Group Inc., received a much-needed infusion of cash last month when Goldman Sachs Group Inc. agreed to invest $1.27 billion.

Japanese banks have struggled to rid themselves of massive bad loans caused by the collapse of asset prices in the late 1980s. Those problems have only worsened as Japan's economy has stagnated, leaving stocks near 20-year lows and deflation _ a situation in which continuous price falls drag down workers' income and employers' profits _ unchecked.

The government estimates Japan's banks have about 40.1 trillion yen ($333 billion) in bad debts. Private analysts say the figure is larger.

Last month, Tokyo-based Mizuho said it planned to tap investors and business partners for around 1 trillion yen ($8.3 billion) in cash by March 31, the end of the current fiscal year.

The funds are expected to go toward erasing 2.03 trillion yen ($16.8 billion) in bad debt this year. The bank has forecast net losses of 1.95 trillion yen ($16.2 billion) this fiscal year.