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US bank Bear Stearns is to receive emergency funding from the Federal Reserve of New York and JP Morgan Chase.

The bank has been at the centre of the US mortgage debt crisis and reports had circulated that it was failing to fund daily business.

The emergency money will be providing to the struggling bank for an initial period of 28 days.

The funding will be provided "as necessary", a JP Morgan statement said.

Talks between Bear Stearns and the rival bank are also underway about a permanent financing deal.

Alan Schwartz, president and chief executive officer of Bear Stearns, said in a statement issued today: "Bear Stearns has been the subject of a multitude of market rumours regarding our liquidity. We have tried to confront and dispel these rumours 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."

The company's statement added that no assurances could be made that strategic alternatives would be successfully completed.

Shares in the bank fell as much as 53 per cent after the news was announced this afternoon.

The credit crunch has caused a worldwide financial crisis with banks no longer willing to lend each other money after sustaining massive losses due to investments tied up in the US housing market.