By Douwe Miedema

WASHINGTON, Dec 27 (Reuters) - U.S. bank regulators said on Friday they would consider allowing banks to hold on to certain complex securities despite a new rule limiting risky investments.

The announcement came after lenders warned in a lawsuit of hefty losses from the so-called Volcker rule.

The Volcker rule prohibits banks from owning hedge funds or private equity funds to reduce risk, but the ban included a type of security community banks regard as harmless.

The regulators said they would now reconsider whether these instruments could be made exempt and would make a decision no later than Jan. 15.

A change would mark the first finessing of the Volcker rule, one of the most hotly debated provisions of the Dodd-Frank law, which was designed to overhaul Wall Street after the devastating financial crisis of 2007-09.

Banks had argued in court that they needed a decision before the end of the year because accounting rules would force them to write down $600 million in capital this quarter if they knew they had to sell the securities later.

But the regulators indicated that a decision by the middle of January was early enough.

"The accounting staffs of the agencies believe that ... any actions in January 2014 that occur before the issuance of December 31, 2013, financial reports should be considered when preparing those financial reports," they said.

Later on Friday, the two parties said they agreed to take more time to sort out the issue, filing a joint motion in the court that gave the regulators until Jan. 17 to react, and the banks until Jan. 23 to reply.

Originally, the deadline for regulators had been set for Monday, and that for banks on Tuesday.

At stake are so-called collateralized debt obligations backed by trust preferred securities - or TruPS CDOs - which have hybrid characteristics of both debt and equity and can get a favorable tax treatment.

The Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation had earlier told banks they did not immediately need to sell the assets in question.

The case was filed by the American Bankers Association, in conjunction with CB&T Bancshares Inc and its Citizens Bank and Trust Co subsidiary, as well as MBT Financial Corp and its Monroe Bank and Trust Co subsidiary.

"ABA appreciates the regulators taking this important step, and our experts are studying to see if the affected banks indeed find immediate interim relief from this action," ABA president Frank Keating said in a statement.