Fitch Ratings has downgraded Bear Stearns Companies Inc. on news that it required emergency funding from J.P. Morgan Chase & Co.

Fitch has also placed Bear Stearns on Rating Watch Negative. The firm said the rating actions are being taken in consideration of Bear Stearns’ rising risk profile that has impeded its access to traditional funding sources.

“Up until now, Fitch believed Bear Stearns had managed its balance sheet well through the ongoing credit stressed environment. Bear Stearns suffered recent liquidity deterioration as credit risk re-pricing and declining business opportunities in the overall market continued. As a consequence, there has been a rapid decline in credit investor appetites which has dramatically impaired Bear Stearns’ financial flexibility,” it explained.

Fitch said it believes financial performance in 2008 will be particularly challenged given Bear Stearns’ scale of fixed income business and more limited international scope. Restoration of sustained earnings growth will be hampered by limited opportunities in key business lines (mortgage origination, securitization and CDO/CLO underwriting).

Future rating actions will be dictated by several factors, including: long-term funding plans, interim earnings declines, severe negative valuation adjustments, more diminished liquidity, rising leverage and/or tangible equity erosion.