UPDATE 1-Bank of America obtains U.S. aid for Merrill deal

WASHINGTON, Jan 16 - Bank of America Corp will receive $20 billion in fresh government cash and a federal backstop against $118 billion of bad assets to help the bank absorb Merrill Lynch & Co, U.S. officials said on Friday.

As part of the emergency plan announced by the Treasury Department, the U.S. Federal Reserve and Federal Deposit Insurance Corp, Treasury will provide the largest U.S. bank by assets with $20 billion in fresh capital from a government bailout fund in exchange for preferred stock.

The government also agreed to share in losses on the troubled assets, which Bank of America took on when it paid an estimated $19.4 billion for Merrill on Jan 1.

Bank of America had closed the transaction without government help, but market conditions have substantially worsened since Sept. 15, when the deal was struck after less than 48 hours of hurried talks, and on the same morning that Lehman Brothers Holdings Inc went bankrupt.

Bank of America shares closed down $1.88, or 18.4 percent, at $8.32 on Thursday, after falling to their lowest in more than 17 years on investors' concerns the company does not have the ballast to weather the financial crisis.

The bank, based in Charlotte, North Carolina, will offer more details on Friday as it is due to report fourth-quarter results at 7 a.m. EST (1200 GMT). Late Thursday, Bank of America said it was moving up its release from Jan. 20.