Washington  - The US financial system has been stabilized and authorities averted a near-collapse in September that prompted unprecedented government intervention in private institutions, US Treasury Secretary Henry Paulson said in congressional testimony Tuesday.

But Paulson warned there was still much work to be done to help the US financial sector recover. The government has already purcharsed nearly 150 billion dollars worth of shares in US banks to keep them from collapse, as part of a 700-billion-dollar rescue package approved by Congress in October.

Paulson said the initial capital injection has helped stabilize the system and the Treasury expected to hold the rest of the money to provide "flexibility" for the incoming administration of president- elect Barack Obama, who takes office January 20.

"This is early days," Paulson told the Financial Services Committee of the House of Representatives. "I think we have turned the corner in terms of stabilizing the system."

Paulson warned that the government bail-out package was not a "panacea for all our economic difficulties." Though a collapse of the US financial sector has been prevented, its downturn has already spilled into the wider US and global economy.

The US economy contracted by 0.3 per cent in the third quarter of 2008 and the International Monetary Fund has forecast a recession in the world's largest economy.

The financial crisis nearly spiraled out of control in September, as the bankruptcy of Lehman Brothers Holdings Inc sent US stocks plunging and froze US credit markets.

Federal Reserve Chairman Ben Bernanke, testifying before the same committee, said banks have begun opening up lending again since mid- October, but warned "credit conditions are still far from normal." (dpa)