UPDATE 1-US's Paulson-Bear Stearns aid could cost taxpayers

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WASHINGTON, April 1 (Reuters) - U.S. Treasury Secretary Henry Paulson acknowledged in a March 17 letter that Federal Reserve support for the sale of troubled investment bank Bear Stearns BSC.N to JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) could reduce revenues to the Treasury.

The letter was released on Tuesday by the U.S. Senate Finance panel, which had requested information from the Treasury about the March 16 transaction.

"I support this action as appropriate and in the government's interest, and acknowledge that if any loss arises out of the special facility extended by the (New York Fed) to (JP Morgan), the loss will be treated by the (New York Fed) as an expense that may reduce the net earnings transferred by the (New York Fed) to the Treasury general fund," Paulson wrote to New York Fed President Timothy Geithner.

Lawmakers have raised questions about the government's role in the transaction, which policy-makers said was necessary to prevent damage to the financial system from buckling under a possible series of failures.

Fed Chairman Ben Bernanke is scheduled to testify before congressional panels on Wednesday and Thursday on the recent financial turmoil and is likely to face questions about the deal, in which the Fed agreed to stand behind $29 billion of Bear Stearns' shaky assets. (Reporting by Mark Felsenthal; Editing by James Dalgleish)