US will `do what it takes,' Paulson says

US of the Treasury Henry Paulson said on Sunday the US government would "do what it takes" to calm jittery markets after regulators intervened to drag the Bear Stearns bank from the brink of collapse.

The former Goldman Sachs boss reaffirmed that a "strong dollar is in our nation's interest," and insisted that the US economy's "fundamentals are strong" -- provided Congress keeps taxes low and embraces free trade.

"The government is prepared to do what it takes to maintain the stability of our financial system. That is our priority," he said on Fox News after the Federal Reserve was forced on Friday to bail out investment bank Bear Stearns.

On a round of TV interviews, Paulson talked up the faltering economy, and denied that US President George W. Bush's administration was neglecting to head off the decade's second recession after the "dotcom" downturn of 2001.

The Treasury chief said he was concerned about "moral hazard," when other banks in trouble might be encouraged to continue risky behavior because of the prospect of a federal rescue.

But his main concern in the Bear Stearns crisis was "to minimize the impact on the broader economy," he said.

"I think we made the right decision. The Federal Reserve made the right decision here. I have confidence in our markets and in our financial institutions," he said.

Bush Friday said the economy was going through a "tough time" but ruled out Democratic calls for a second stimulus package, warning that political over-reaction may instead make things worse.

"My reaction is we are all over this. The president is very focused on what's going on in the economy," Paulson said, stressing that he had been manning the telephones to oversee the Bear Stearns crisis.

The Treasury chief noted that US taxpayers should start receiving rebate checks early in May under a US$168 billion stimulus package pushed through Congress last month at the administration's urging.