Some money managers say US markets were soothed by the Fed's actions, but other finance experts and lawmakers have voiced concern about what they said was a "bailout" and the risky precedent it has set.

Fed chairman Ben Bernanke has publicly defended the central bank's move last month in putting its reputation on the line to help banking titan JPMorgan Chase takeover Bear Stearns for just over one billion dollars.

Bernanke said the central bank stumped up billions of dollars to support the March 16 deal because a Bear Stearns collapse could have destabilized other cash-strapped banks and securities firms.

One of Bernanke's predecessors, Paul Volcker, voiced angst about the Fed's role in a speech at the Economic Club of New York earlier this month.

"The Federal Reserve judged it necessary to take actions that extend to the very edge of its lawful and implied powers, transcending certain long embedded central banking principles and practices," Volcker said.

The central bank's bid to stop the banking system seizing up from a widespread credit squeeze and its support for Bear Stearns has triggered congressional hearings.

Some lawmakers have bristled at the Fed's willingness to provide 29 billion dollars in "taxpayer" guarantees in return for collateral from Bear Stearns.

Some of the collateral includes mortgage-backed securities which have slumped in value due to a lingering housing market downturn.

The Fed could make money from the collateral if the securities rise in price, but it could also lose money if the value of the pledged securities tanks.

Prominent lawmakers have expressed worry that the Fed has encouraged securities firms to speculate more aggressively, and expect government aid if they get into trouble.

Republican senator Jim Bunning of Kentucky, who listened to Bernanke at a hearing earlier this month of the Senate Banking Committee, was disturbed by the Fed's involvement.

"That is socialism, not a free market, and it must not happen again," Bunning said.

Bernanke told lawmakers that the Fed "did not bailout" Bear Stearns and that credit and financial problems could have worsened if the Fed had not acted decisively.

"Given the exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain," he warned.

Bob Eisenbeis, chief monetary economist at Cumberland Advisors and a former research director at the Federal Reserve Bank of Atlanta, said a bailout of sorts did occur, but that its justification is tricky to judge.

"The claim was that if it hadn't been done, the ripple effects -- because of the difficulties in unwinding the interconnected derivative transactions -- would have caused financial difficulty for the markets.

"Well that's an assertion that can't be tested. We just don't know. And you can't prove them wrong," Eisenbeis said.

Bear executives have said the distressed bank, and one of America's biggest investment firms, would have entered bankruptcy if JPMorgan Chase and the Fed had not come to its rescue, partly as other banks were refusing to do business with it.

Some investment managers have applauded the Fed's role.

"Bernanke stopped the house of cards from collapsing, that was the peril, the danger, so I approve of what he did," said Roland Manarin, founder and president of the Manarin Investment Council asset management firm.

Manarin said the central bank lived up to its role as the "lender of last resort" in times of market turmoil.

Jeremy Siegel, a finance professor at the University of Pennsylvania's Wharton business school, said it appears the Fed has succeeded in averting a credit tsunami.

"A generalized credit collapse seems now most unlikely due to the Fed's actions in connection with Bear Stearns. That increasingly looks like the turning point in this financial crisis," he said.

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