Washington  - US President George W Bush on Thursday defended the "extraordinary measures" taken by the government to address a growing financial crisis and sought to reassure investors leading a sell-off on Wall Street in the past week.

Speaking after an emergency White House meeting with his economic advisors, Bush promised the government would continue taking necessary actions "to strengthen and stabilize our financial markets and improve investor confidence."

US stocks have posted dramatic losses amid a crisis of confidence on Wall Street since Monday - the product of bank failures, government bailouts and fears of more bankruptcies on the horizon.

Morgan Stanley, one of only two remaining independent investment banks on Wall Street, was in talks Thursday with Wachovia Corp about a possible takeover, US media reported. The Chinese state investment fund was also reportedly in talks with the investment bank. Washington Mutual, the largest US savings and loan bank, was also reportedly shopping for a potential buyer.

Bush cited the wealth of government action taken over the past weeks in an effort to keep the financial crisis from spilling into the wider US economy, as a key gauge of economic performance dropped 0.5 per cent in August.

The New York-based Conference Board's index fell for the third time in the last four months amid an economic downturn in the world's largest economy. The indicator did not take account of the financial turmoil of the past week.

In its latest bid to calm investor fears, the Federal Reserve early Thursday injected nearly 250 billion dollars into the financial system through joint action with five other central banks around the world.

The Fed nearly quadrupled the amount of dollars other central banks can auction off, in order to "address the continued elevated pressures in US dollar short-term funding markets."

Separately, the Fed added another 50 billion dollars in reserves to the US banking system through its existing loan facilities. Inter- bank lending had seized up on Wednesday as struggling banks began hoarding cash.

US stocks posted significant gains as Wall Street opened Thursday, apparently buoyed by the joint central banks' actions, but were down again slightly by the afternoon.

On Tuesday night, the government took the unprecedented move of granting an 85-billion-dollar loan and effectively taking control of insurance giant American International Group Inc (AIG).

Just two weeks ago, the government took control of government- chartered mortgage giants Fannie Mae and Freddie Mac and pledged 200 billion dollars to keep them afloat. Earlier this year, the Federal Reserve bankrolled JP Morgan Chase's 29-billion-dollar purchase of troubled investment bank Bear Stearns.

"These actions are necessary and they're important, and the markets are adjusting to them," Bush said in a brief statement, but added that investors clearly still had a long road ahead.

"Our financial markets continue to deal with serious challenges," he said. "As our recent actions demonstrate, my administration is focused on meeting these challenges."

White House spokeswoman Dana Perino on Wednesday said the interventions were being considered on a case-by-case basis. The government refused to bailout Lehman Brothers Holdings Inc, which on Monday filed the largest bankruptcy in US history.

The Dow Jones Industrial Average tumbled more than 4 per cent on Wednesday as investors feared more banks could lack the capital to remain solvent in the ongoing credit crisis. (dpa)