Bear Stearns Asset Management CEO Richard Marin is taking a stronger role in managing its two troubled hedge funds and tapped mortgage unit head Thomas Marano to save one of the funds, two sources familiar with the decision said.

Marin appointed Marano last week to help with the funds managed by Ralph R. Cioffi, who retains his current role as portfolio manager for both funds, said one source.

Company spokesman Russell Sherman declined to comment.

Bear Stearns Cos. Inc. said on Tuesday it does not plan to bail out the High-Grade Structured Credit Strategies Enhanced Leverage Fund, the second of two struggling hedge funds.

Instead it will provide $1.6 billion of financing to save its High-Grade Structured Credit Strategies Fund. Days earlier the bank had said it would provide up to $3.2 billion in financing.

Marano is a longtime Bear Stearns banker who joined the firm in the 1980s and rose through the ranks to become head of the company's mortgage and asset-backed securities business.

MARKETS

Stocks fell and Treasuries edged higher late on Tuesday on concern that problems stemming from defaults by less-creditworthy mortgage holders could reverberate through the markets.

Bill Gross, manager of the largest bond fund in the world, PIMCO, said the subprime crisis was not isolated and would eventually take a toll on the U.S. economy.

But a U.S. lawmaker and the head of the Securities and Exchange Commission did not expect a systemic meltdown from Bear's woes.

Bear said in a statement the financing helped stabilize the market for the securities the funds traded in -- collateralized debt obligations, which are essentially portfolios of debt.

CDOs trade infrequently and many investors feared that, if creditors sold CDOs seized from Bear, the market as a whole for those securities would decline. In the worst-case scenario, corporate borrowing costs could increase, leveraged buyout activity could decrease and the stock market could fall.

Both Bear funds racked up big losses. The High-Grade fund was down about 5 percent in the first four months of the year, while the Enhanced Leverage fund was down about 23 percent during that period.

Losses, combined with the funds restating their results, spurred margin calls and investor redemptions.

Lenders have about $1.2 billion of exposure to the Enhanced Leverage fund.

The two Bear Stearns funds are just some of the casualties of the subprime mortgage lending crisis, which has forced more than 30 lenders to sell themselves or file for bankruptcy.

Swiss bank UBS said in May hedge fund arm Dillon Read Capital Management lost 150 million Swiss francs ($122 million) from bad bets on the U.S. subprime mortgage market.

ICEBERG

Some investors believe this may be the tip of the iceberg.

PIMCO's Gross said subprime mortgages could hit consumption and home building in the next 12-18 months. The Federal Reserve may cut short-term rates in the next six months, he added.

But not everyone is panicked. Fox-Pitt, Kelton analyst David Trone issued a report with 10 reasons why he was sanguine about Bear's hedge fund issue, including the fact the hedge fund assets were legally segregated from the rest of the bank's assets, so legal actions were unlikely to affect Bear itself.

Barney Frank, U.S. House Financial Services Committee Chairman, told Reuters on Tuesday that problems with home loans to less-credit-worthy individuals are not likely catastrophic.

I don't believe it's going to lead to a financial meltdown, Frank said.

And SEC Chairman Chris Cox told a U.S. House of Representatives Financial Services Committee meeting he sees little systemic risk arising from liquidity issues.

Bear's shares edged up 25 cents, or 0.18 percent, to $139.35 on the New York Stock Exchange, not far off their lowest level since September.

EVERQUEST

The two Bear Stearns hedge funds made bad investments in CDOs that were portfolios of subprime mortgages.

Similar difficulty with CDOs likely spurred Everquest Financial Ltd., a company formed by Bear Stearns to invest in the securities, to withdraw on Monday its registration for a $100 million initial public offering.

Ralph Cioffi, co-chief executive of Everquest, was also the manager of the two troubled Bear hedge funds.

Everquest, which managed $720 million of CDOs as of the end of 2006, had filed plans on May 9 for an IPO. It is a Cayman Islands-registered business jointly run by Bear Stearns Asset Management and Stone Tower Capital LLC, a hedge fund firm specializing in debt.

(Additional reporting by Tim McLaughlin, Joe Giannone, Jennifer Ablan, and Nick Zieminski in NEW YORK and Patrick Rucker and John Poirier in WASHINGTON, D.C.)

($1=1.228 Swiss francs)

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