NEW YORK - THE Federal Reserve Bank of New York said on Thursday that it has extended a US$28.82 billion (S$39.35 billion) loan, slightly less than the US$29 billion originally expected, to JPMorgan Chase for the acquisition of Bear Stearns.

In March, in a highly unusual move, the Fed provided the financing for JPMorgan to acquire Bear Stearns in order to prevent Bear from going bankrupt and potentially dragging down the entire financial system.

'Total credit extended by the New York Fed is lower than originally anticipated as a result of an extensive review of the portfolio,' the New York Fed said in a statement on its website.

The LLC, which will be consolidated on the books of the New York Fed, will use the proceeds of the loans to finance the purchase of a portfolio of assets formerly owned by Bear Stearns, the statement said.

The line of credit is backed by the US$28.8 billion portfolio of bonds and other fixed-income products held by Bear Stearns before it collapsed in March.

The Fed has said the portfolio contains collateralised mortgage obligations, most of which are backed by government-sponsored enterprises such as Fannie Mae and Freddie Mac.

It also consists of asset-backed securities - a sector that includes sub-prime mortgage bonds - adjustable-rate mortgages, commercial mortgage-backed securities, and collateralised bond obligations.

Markets for many of these investments have deteriorated this month as outlooks for United States housing worsen and investors see banks and hedge funds continuing to unload risky assets from balance sheets.

Brokers alone sold US$300 billion in balance sheet assets this quarter, including US$45 billion in residential and commercial mortgage debt, according to Citigroup analysts.

Increased risk aversion has erased some or all of the rallies that followed the Fed's orchestrated rescue of Bear Stearns and its programmes to boost liquidity to banks eased expectations of asset sales. -- REUTERS