The U.S. Federal Reserve Board on Tuesday announced it has approved the application by China Investment Corporation (CIC) to buy up to 10 percent of voting shares of investment giant Morgan Stanley.

The central bank said CIC, a sovereign wealth fund organized by the Chinese government to invest foreign exchange reserves, will acquire the stakes indirectly. It entered into a stock purchase agreement to acquire voting common stock of Morgan Stanley by August 2010.

CIC currently holds 2.49 percent of voting common stock of Morgan Stanley. It would own and control up to 10 percent of Morgan Stanley's voting common stock if the deal is exercised.

CIC has said it does not propose to control or exercise a controlling influence over Morgan Stanley and its indirect investment will be a passive investment.

"Based on the foregoing and all the facts of record, the board has approved CIC's application to acquire up to 10 percent of the voting shares of Morgan Stanley," the Federal Reserve said in a statement.

Morgan Stanley, based in New York, has assets of about 626 billion U.S. dollars.