Washington - A mammoth bailout by the US government to contain the ongoing financial crisis could cost as much as half a trillion dollars, media reports said Friday.

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke briefed congressional leaders on comprehensive measures late Thursday, in what could become the largest-ever intervention in US financial markets. The new move represents a broader approach to dealing with the crisis, as opposed to the ad hoc and stop-gap measures taken since the beginning of this year.

While the details of the proposal were still being worked out, it could enable the federal government to buy heavily-discounted distressed mortgages from banks and other institutions, the New York Times reported, describing it as the "most direct commitment of taxpayer funds so far in the financial crisis."

Democratic Senator Charles Schumer, who chairs Congress' Joint Economic Committee, said he had spoken with government officials about setting up a new government agency that could take over the Federal Reserve's current role of pumping liquidity back into the financial system.

The agency would take on billions of dollars in bad loans of banking firms that have been decimated by the plunging value of mortgage-related assets, and manage those firms already taken over by the government. This would allow the Federal Reserve to focus on its core competence - monetary policy.

The two-part plan to buy both private and government-guaranteed mortgage-backed securities could cost as much as half a trillion dollars, CNBC reported. The larger part of the proposal, which would need to be approved by Congress, would involve buying mortgages underwritten by Wall Street.

The second part would involve buying government-backed mortgages, the report said. This would come under a plan the government announced less than two weeks ago, when it took control of government-chartered mortgage giants Fannie Mae and Freddie Mac and pledged 200 billion dollars to keep them afloat.

Lawmakers hope to complete the legislation by the end of next week, when Congress is scheduled to adjourn, the Times reported.

The plan, which would move troubled assets into a new institution, could also include federal insurance for investors in money-market funds. "They (Paulson and Bernanke) were just worn out and weary from the one-off situations they had to deal with, and finally came to the realization that it's a much more pervasive problem," Marilyn Cohen, chief executive of Envision Capital Management in Los Angeles, told Bloomberg financial news.

Also part of the comprehensive plan was for the Securities and Exchange Commission to propose a temporary ban on short-selling, a stock trading technique that critics argue has helped fuel a furious sell-off of financial stocks on Wall Street this week.

The commission on Wednesday banned the most extreme practices related to short-selling. Short-selling itself is legal, but not if linked with spreading rumours that can help an investor's cause.

After the briefing with congressional leaders late Thursday, Paulson told reporters: "What we're working on now is an approach to deal with systemic risk in the capital markets. We talked about a comprehensive approach that will require legislation to deal with illiquid assets on financial institutions' balance sheets."

"This country is able to come together and do things quickly when it needs to be done for the good of the American people," he said, adding that they had "come together to work for an expeditious solution."

Bernanke described the meeting as "very, very positive" and said, "We look forward to working closely with Congress to resolve this financial crisis and get our economy moving again."

While no formal plan or timeframe was announced after the meeting, Pelosi said, "We hope to move very quickly. Time is of the essence." Senate majority leader Harry Reid said he expected to see a proposal "in a matter of hours, not days."

On Thursday, US President George W Bush defended the "extraordinary measures" already taken by the government to shore up a wealth of shaky financial firms and sought to reassure investors fearful that more bank failures could be on the horizon.

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."

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.

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.

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.

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