UPDATE 1-Obama says premature to discuss financial bailout

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MONACA, Pa., March 17 (Reuters) - Democratic presidential candidate Barack Obama said on Monday U.S. officials could not allow a credit-market collapse but it is too soon to talk about a taxpayer-funded bailout in the current financial crisis.

"It's premature to start talking about taxpayer-funded bailouts," Obama told reporters while campaigning in Pennsylvania.

But he said officials needed to ensure that there was not a "domino effect" on Wall Street of the credit crunch and mortgage woes that could take a huge toll on the broader economy.

"A general principle is that we don't want to reward bad behavior," the Illinois senator said.

But he added, "What we can't do is potentially have a domino effect on Wall Street in which our financial markets and our credit markets completely collapse."

Obama said the Federal Reserve did the right thing in agreeing to finance up to $30 billion of Bear Stearns Cos Inc's BSC.N assets in a deal that paved the way for the firm's purchase by JPMorgan Chase (JPM.N: Quote, Profile, Research, Stock Buzz). (Reporting by Caren Bohan, editing by Patricia Wilson)