* Another $985 mln set for hearing on Nov. 29
* Total professional fees have reached $1.8 billion
* Fee committee paying close attention to rate increases
By Nick Brown
NEW YORK, Nov 14 (Reuters) - A bankruptcy judge on Wednesday approved about $158 million in lawyers' and other fees in Lehman Brothers' liquidation, a first step toward final approval more than $1 billion in professional fees, a lawyer for Lehman's fee committee said on Wednesday.
Judge James Peck allowed the fees at a hearing in U.S. Bankruptcy Court in Manhattan, attorney Katherine Stadler told Reuters. Stadler represents the committee that oversees fee requests and objects to those it deems unreasonable.
Wednesday's hearing covered $157.86 million split between 25 law firms and other professionals. That included about $80 million to Alvarez & Marsal, which managed Lehman's assets during bankruptcy, and about $40 million to Houlihan Lokey, financial adviser to Lehman's creditors' committee.
Lehman Brothers Holdings Inc filed for bankruptcy in September 2008 at the height of the financial crisis.
Total fees in the case, the largest-ever Chapter 11 bankruptcy, are about $1.8 billion, though only about another $985 million is subject to court approval, Stadler said.
That portion, slated to be heard at another hearing on Nov. 29, includes two of the highest earners in the case: law firms Weil Gotshal & Manges and Milbank Tweed Hadley & McCloy, counsel to Lehman and its creditors' committee, respectively.
Those firms remain at odds with the fee committee over aspects of their fee applications. Stadler said the committee is "optimistic" it can resolve the issues by the Nov. 29 hearing.
Spokeswomen for both law firms did not respond to requests for comment on Wednesday.
Part of the dispute could center on rate increases requested by lawyers at Weil and Milbank over the course of the four-year case. Such mid-stream rate hikes have received particular scrutiny from the Lehman fee committee.
In a June memo, the committee told professionals it would question rate increases in certain circumstances and would consider imposing its own formula to determine appropriate rate increases based on cost-of-living and market data.
The fee committee in court papers cited a "very restrained" legal market in which rate increases have slowed, yet certain associates at Weil and Milbank raised rates 40 to 60 percent during the Lehman case, according to the firms' interim fee applications.
Rate hikes are also a hot issue among bankruptcy regulators. The U.S. Trustee Program, the Justice Department arm that oversees how companies spend money in bankruptcy, is pushing new guidelines that could require law firms to be more accountable for rate increases.
The guidelines, proposed earlier this year, would compel firms to show why an increase is warranted and how much it would cost the bankruptcy estate.