By Emily Kaiser and Ros Krasny - Analysis

WASHINGTON/CHICAGO (Reuters) - The U.S. Federal Reserve is taking a risk by opening up its own balance sheet to the same poisonous securities that have strained banks to the limit. But the risk of doing nothing is far greater.

The central bank seems to be wading further into shark-infested waters by the day as it looks to shore up a blighted credit market that threatens to prolong the pain for a U.S. economy that many analysts fear is already in recession.

The Fed had little choice but to act after investment bank Bear Stearns became the biggest casualty to date of the seven-month-long credit crisis, analysts said.

The firm agreed to a $2 per (0.98 pence) share buyout from JPMorgan Chase & Co on Sunday. Its shares had traded around $60 on Thursday and $160 (78.9 pounds) last April.

In a surprise move, also on Sunday, the central bank made an emergency quarter-percentage point cut it its discount rate that it charges on loans to banks, and announced a central role in the Bear Stearns deal. The discount rate was dropped to 3.25 percent.

Analysts said risks to the U.S. financial system approaching those seen during the Great Depression forced the Fed's hand.

"The U.S. financial system probably is under more strain now than for at least several decades. Let's hope (the Fed's) determined efforts eventually get 'traction,'" said Rory Robertson, analyst at Macquarie Bank in Sydney.

The last time the Fed lowered rates in an emergency move, in January, it was at the beginning of the New York business day and came in the form of an unexpected three-quarter point cut in the benchmark federal funds rate.