NEW YORK - J.P. Morgan & Co.'s decision last week to start accounting for all of its investment securities at market value moves a controversial issue to center stage.

The giant New York bank announced Thursday that it would consider its entire $22.58 billion investment portfolio as being "held for sale." That means it will record all its securities at the lower of historical cost or market value.

The change will have no immediate impact on Morgan's earnings, because the portfolio's market value is $790 million above its cost. But if interest rate spikes push the portfolio below market value, Morgan would take a hit to earnings.

Morgan's action is the most sweeping response yet to the pressure on the banking industry from the Securities and Exchange Commission to value investment securities at market levels.

Morgan is the latest of a number of strongly capitalized banks that appear to be taking preemptive moves before facing direct pressure from the SEC. Others include Norwest Corp. and PNC Financial Corp.

The SEC this year first focused on banks, such as NationsBank Corp., Signet Banking Corp., and Bank of Boston Corp., that needed SEC approval in order to issue new securities.

The agency then targeted banks that have taken large gains on the sale of investment securities in recent years, regardless of whether they had plans to raise equity or stock.

SEC Chairman Richard Breeden has been behind the push toward market value accounting. Banks in the past have typically held investment securities at historic cost, a practice that Mr. Breeden has said permits them to take gains selectively and sit on losses.

The Volatility Response

Banks have unsuccessfully argued that use of market value accounting will introduce unnecessary volatility to industry earnings, and effect bank capital levels as a result.

Most banks that have already moved part of their investment holdings to market value accounting have only moved a small portion. For instance, NationsBank this year revalued $6 billion out of a portfolio totaling $24 billion.

|Greater Flexibility'

Analysts said that the scope of Morgan's action demonstrates its superior capital strength when compared with the rest of the industry. Most other banks have moved much smaller portions of their securities to accounts that must be marked to market value.

"When you have unrealized gains greater than many banks' total capital, that gives you greater flexibility," said Brent Erensel, a banking analyst with UBS Securities.

The action recalled Morgan's move decision in the 1980s to fully reserve against loans to Latin American countries, a step its rivals couldn't match. Such moves help "differentiate them from the rest of the pack," Mr. Erensel said. "Morgan is saying, We have [so muchl strength that accounting issues are not important."

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