Fed, J.P. Morgan Rescue Bear Stearns

In a dramatic move, the Federal Reserve Bank of New York and J. P. Morgan Chase have provided emergency funding to avert a financial collapse of Bear Stearns Cos. The development marked a more serious turn in the credit crunch in the U.S. markets, and the speed with which the largest financial firms can be imperiled by a crisis of confidence.

"Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity," said Alan Schwartz, president and chief executive in Bear Stearns, in a written statement. "We have tried to confront and dispel these rumors and parse fact from fiction. Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated. We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations."

J.P. Morgan said it is "working closely with Bear Stearns on securing permanent financing or other alternatives for the company." It's not immediately clear whether this might include Morgan acquiring assets of Bear Stearns or even the entire company.

While any discussions will focus on financial assets, Bear Stearns has a major data center in Whippany, New Jersey.

The announcement came minutes before the opening of U.S. financial markets, which opened mixed but quickly headed lower. At 10 am, the Dow Jones Industrials were 250 points lower.

Early coverage is available at The Wall Street Journal, Bloomberg and CNBC.