By Martin Howell

NEW YORK (Reuters) - JPMorgan Chase & Co set a deal to buy stricken rival Bear Stearns for a rock-bottom price, while the U.S. Federal Reserve expanded lending to securities firms for the first time since the Great Depression to prop up the financial system.

The shock news, the biggest sign yet of how devastating the credit crisis is for Wall Street, slammed the U.S. dollar to a record low against the euro, pummelled Asia stock markets and boosted gold and low-risk bonds.

The Fed also made an emergency quarter-point cut in its discount rate and agreed to finance up to $30 billion (14.8 billion pounds) of Bear's assets as U.S. Treasury Secretary Henry Paulson pledged the U.S. government is prepared to do "what it takes" to maintain the stability of the financial system.

"The fear is how many more skeletons in the closet are still there in the global credit markets?" said David Cohen, economist at Action Economics in Singapore.

"This is another effort by the Fed to calm things down, but the cloud on the horizon is just how much more of these credit issues are still out there."

Faced with an economy that may already be mired in recession, the Fed is expected to pull another tool out of its box on Tuesday by slashing its key benchmark overnight interest rate by as much as 1-¼ percent.

It has already cut the rate by a total of 2-¼ percentage points to 3 percent since mid-September -- putting downward pressure on the U.S. dollar.

The Fed's latest moves were seen as an attempt to prevent others from suffering the same fate as Bear, the fifth-largest U.S. investment bank. Bear in essence faced Wall Street's version of a run on the bank as customers stopped trading with the firm and demanded their cash late last week.