LUXEMBOURG (Reuters) - Setting up a European bad bank to absorb the mountain of bad loans saddling lenders in several euro zone countries would be a "valuable" move to improve the bloc's financial stability, the head of the euro zone bailout fund said on Monday.

A plan to establish an "asset management company" that would facilitate trading the more than 1-trillion-euro worth of bad loans in EU lenders' balance sheets was presented on Monday by the European Banking Authority.

Klaus Regling welcomed EBA's proposals and called for some sort of public support to the EU-wide bad bank.

"Some role for the public sector is probably needed," he said, adding that the new entity would have the target of acquiring up to 250 billion euros of non performing loans from EU banks.

EBA's plan does not foresee the sharing of bank risks among EU states, Regling said, underlining that this "politically is an advantage".

Germany, EU's largest economy, has long opposed plans to share bank risks, fearing German taxpayers would end up paying the bill of bank rescues in other countries.

Italy, Greece, Cyprus, Portugal and Slovenia are among the EU states with the highest level of bad loans in their banking systems, EBA figures show.

(Reporting by Francesco Guarascio; Editing by Andrew Heavens)