WASHINGTON - The Treasury is working on a number of fronts to use the government's $700 billion bailout fund to boost lending to small businesses, a senior Treasury official said on Wednesday, adding that tax incentives to boost hiring should be considered.

Gene Sperling, counselor toTreasury Secretary Timothy Geithner, told Senate Democrats that Congress should consider with an open mind ideas to encourage small businesses to hire new workers.

In so doing we should look at the jobs cycle, and ask whether at this moment -- as growth is reappearing -- there are tax incentives that could accelerate the pace at which companies move from adding hours for existing workers to hiring new employees, Sperling said in prepared remarks to the Senate Democratic Policy Committee.

Sperling did not identify specific uses for the Troubled Asset Relief Program, which has seen its resources grow in recent weeks as large banks scramble to repay tens of billions of dollars in taxpayer bailout funds. Geithner recently extended the bailout program until October 3, 2010.

The Treasury is considering ways to funnel more TARP capital to smaller banks and community lenders to encourage lending to small businesses, which are the traditional customers for these institutions. Use of TARP resources for direct jobs programs or initiatives that do not use financial institutions as intermediaries would require new legislation in Congress.

President Barack Obama already has asked Congress to increase the size of Small Business Administration-guaranteed loans, as well as for tax breaks that would give small firms a temporary reprieve from capital gains taxes and accelerate their write-offs on new equipment.

Sperling in his remarks called for the United States to be aggressive in working to accelerate job creation.

Job growth is essential to that vision of shared prosperity in all times. But it demands greater urgency and emphasis as we seek to emerge from a profound recession and financial crisis.

He pointed out that a $787 billion recovery spending program had limited job losses, but added that the Obama administration would not be satisfied until sustained economic growth creates good jobs and rising incomes

I recognize that some say that 'reducing the pace of job loss,' or 'making a weak economy far stronger than it would have been' does not make for a good political bumper sticker, he said. But a swing in the economy from losing 700,000 jobs a month earlier this year to the cusp of job creation represents a big difference for working families, he said.

Sperling noted, however, that initiatives to create jobs must be considered in a fiscally responsible environment.

Creating confidence that we are committed to returning to a fiscally sustainable path as job growth becomes stronger -- with deficits cut to the point where they are not increasing debt as a percentage of GDP -- is also critical to giving the private sector the confidence to make long-term investments.

He added that he expects a bumpy road to recovery but told the Senate Democrats that the Obama administration was committed to working with Congress to take additional steps to respond to economic damage and build a stronger economy.

(Reporting by David Lawder; Editing by Andrea Ricci)

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