Jan. 16 (Bloomberg) -- President-elect Barack Obama is likely to back a bank-rescue effort that combines fresh capital injections with steps to deal with toxic assets clogging lenders’ balance sheets, according to people familiar with the matter.

Obama’s economic team will use another portion of the $350 billion remaining from the Troubled Asset Relief Program to help homeowners avoid foreclosure. It may also assist cash-strapped cities and states that are having trouble selling bonds, the people said.

This week’s sell-off in financial stocks and the continuing decline of the U.S. economy put pressure on Treasury Secretary- designate Timothy Geithner and Obama’s economics chief Lawrence Summers to unveil a comprehensive program. Without a radical new effort, soaring credit losses could prolong and deepen a recession that is now more than a year old.

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