UPDATE 4-Ex-Bear Stearns hedge fund managers acquitted

* Cioffi, Tannin were charged with fraud, conspiracy

* Verdict could cool prosecutors on Wall Street cases

* Prosecutor says won't stop enforcing honesty in markets

* Tears of relief after verdict is read (Adds juror comments, Tannin statement, prosecutor statement)

By Grant McCool and Michael Erman

NEW YORK, Nov 10 (Reuters) - Two former Bear Stearns hedge fund managers were found not guilty of fraud, a decision that could make government prosecutors less likely to bring criminal charges against Wall Street executives for their role in the financial crisis.

The case -- the first major prosecution arising from the meltdown of major U.S. financial institutions -- was seen as a litmus test of whether a jury, presented with evidence from emails and other communications, would convict individuals for corporate collapses.

Ralph Cioffi, 53, and Matthew Tannin, 48, were acquitted of all charges on the second day of deliberations by a jury in U.S. District Court in Brooklyn, New York.

Cioffi and Tannin managed two funds, crammed with subprime mortgage-backed securities, that lost institutional and individual investors a total of $1.6 billion.

The jury on Tuesday acquitted both men of conspiracy, securities fraud and wire fraud -- charges brought in a June 2008 indictment. Cioffi was acquitted of an additional charge of insider trading.

"The government never provided enough evidence to convict them," the jury forewoman said. "We never found anything beyond a reasonable doubt," another juror said.

Juror Serphaine Stimpson, 27, an office coordinator at a Brooklyn college, called Cioffi and Tannin "scapegoats for Wall Street." She said: "All eyes were on the trial. It's Bear Stearns we're talking about."

The federal prosecutor whose office brought the case, three months after the government began a crackdown on mortgage fraud, said he was disappointed.

"Honesty and integrity are the principles upon which our financial markets function," Benton Campbell, the U.S. Attorney for the Eastern District, said in a statement. "Enforcing and protecting those principles will continue to be one of the principal efforts of this office."

"I'm happy," Cioffi said, as the families of both men shed tears of relief after the verdict was read.

Tannin left the courthouse smiling broadly with his wife at his side.