The all-stock deal was aimed at averting a bankruptcy of the Wall Street's fifth largest investment bank and a spreading crisis of confidence in the global financial system.

The Federal Reserve and the US government swiftly approved the all-stock deal, showing the urgency of completing the deal before world markets opened.

Under the deal, the Federal Reserve will provide special financing and has agreed to fund up to US$30 billion of Bear Stearns' less liquid assets.

Meanwhile, JPMorgan said it will guarantee the trading obligations of Bear Stearns and its subsidiaries until Bear Stearns' shareholders approve the deal, which is expected to be completed during the second quarter.

But JPMorgan Chase Chief Financial Officer Michael Cavanaugh did not say what would happen to Bear Stearns' 14,000 employees worldwide or whether the Bear Stearns name would survive.

At almost the same time as the deal was announced, the Federal Reserve said it approved a cut in its lending rate to banks to 3.25 percent from 3.50 percent and created another lending facility for big investment banks.

Bear Stearns was founded in 1923 and in recent years was best known for its aggressive investing in mortgage-backed securities. In June, two Bear-managed hedge funds worth billions of dollars collapsed. The funds were heavily invested in securities backed by subprime mortgages.