The deal is significant for Bear. It has never had a big presence outside the U.S., and its deal with Citic could spur more alliances for the big brokerage firm.

The plan would pave the way for business partnerships in both the U.S. and Asia, and involves folding the existing Asia businesses of both firms outside of mainland China into a new joint venture based in Hong Kong. The firms said they will focus on a range of capital-market services, particularly to Chinese companies as they operate outside the mainland.

The slated tie-up is the latest sign of China's growing ambitions in global financial markets, one outgrowth of the country's fast-developing economy and efforts by Beijing to create world-class competitors in various industries. Outside of mainland China, Citic Securities operates a securities business in Hong Kong with more than 250 people, while Bear Stearns has offices in Hong Kong, Tokyo and Singapore employing around 500.

Announcement of the plan stopped short of pledging that a deal with Citic, one of China's leading securities firms, will give Bear Stearns the kind of direct access to China's booming domestic securities industry that Goldman Sachs Group Inc. and UBS AG have.

Even so, the Sino-Wall Street deal joins Bear Stearns with one of China's most well-connected players at a time when Beijing is increasingly signaling readiness to grant more access for foreign firms in its relatively closed stock markets.

The announcement follows weeks of speculation that the firms were talking about an alliance. For Bear Stearns, it is a welcome bright spot amid a difficult year, during which two internal hedge funds collapsed, costing investors $1.6 billion and the firm hundreds of millions of dollars.

Under terms of the deal, Citic will invest about $1 billion in Bear Stearns and receive securities that will convert over time into a roughly 6% equity stake in the New York firm. Citic also will have the right to buy a stake of as much as 3.9% of Bear Stearns in the public market, for total eventual holdings of no more than 9.9% of its stock.

On the other side, Bear Stearns's $1 billion worth of Citic's debt over time will amount to a 2% stake in the Chinese firm. Bear Stearns also will be given options to buy an additional 5% of the company, exercisable over the course of five years. Citic's convertible securities have a maturity of 40 years, but Bear Stearns's purchase of Citic's debt will likely convert into stock over the course of five to seven years.