GOLDMAN SACHS has agreed to pay $550 million to settle civil fraud charges over how it marketed a subprime mortgage product, ending months of negotiations that rattled the bank's clients and investors.

The US securities and exchange commission (SEC) said the penalty was the largest ever for a financial institution, and leaves the door open for future civil suits.

However, many investors viewed the $550 million settlement as just a slap on the wrist for a bank that earned more than $13 billion last year.

"They pay $550 million and they get an $800 million pop in their stock price ... they got off easy," said Kevin Caron, a market strategist at Stifel, Nicolaus & Co.

Goldman's shares rose more than 9 per cent in late and after market trade to $152.20 on reports that the bank was close to settling and the actual announcement.

The investment bank's market value had plunged by more than $25 billion since the SEC pressed charges in April.

The settlement leaves the door open for additional enforcement actions by the SEC and further investigation by federal prosecutors.

The SEC accused Goldman of creating and marketing a debt product linked to subprime mortgage bonds without telling investors that hedge fund Paulson & Co helped choose the underlying securities and was betting against them.

The transaction yielded about $1 billion profit for Paulson, which was not accused of wrongdoing. But investors on the other side of the deal - including German bank IKB and Royal Bank of Scotland - lost about $150 million and $840 million, respectively. - (Reuters)