UPDATE 3-Legg Mason's Miller: "Bottom's been made" in stocks

(Recasts lead, adds Wednesday's stock market performance; background on Miller's comments in April)

By Jennifer Ablan and Herbert Lash

NEW YORK, Dec 3 (Reuters) - Legg Mason's (LM.N) Bill Miller, a celebrated value investor but whose stock picking is far off the mark this year, said on Wednesday the "bottom has been made" in U.S. equities, and forecast opportunities for strong gains once markets rally.

He said the Federal Reserve should buy stocks and junk bonds to avert a deeper financial crisis, adding "the taxpayer would make a killing" as markets rebound.

Speaking at Legg Mason's annual luncheon for media, Miller said that all long-term investors believe that stocks today are cheap, but credit markets must regain health before equity markets can rally.

It "looks as if the bottom has been made" in U.S. stocks, he said.

Miller's comments were given partial credit for Wednesday's 172.60-point rise in the Dow Jones industrial average .DJI.

Miller, who runs Legg Mason's $7.6 billion Value Trust fund, told Reuters the year has been "terrible, a disaster and awful," yet he held out his past performance in down markets as a reason why he should not be counted out.

"We've performed in most of the financial panics that we've had -- the last one being the three-year bear market ending in 2002 -- we outperformed all the way through that," he said.

"So even though we lost money, we lost a lot less money than the market did," Miller added.

However, Miller acknowledged that his performance has been worse than in past downturns.

"When you're underperforming and losing more money than the market in a down market, then that's a much more problematic situation. We've performed far worse than I would've predicted we would," he said.

For the year, Miller's flagship Value Trust LMVTX.O fund was down 59.7 percent as of Tuesday, compared to a 41 percent decline in the reinvested returns of the S&P 500 index, according to Lipper Inc., a unit of Thomson Reuters.

Performance over the year-to-date, one-, three- and five-year periods for Value Trust put it at the bottom of the barrel among its peers, Lipper data shows.

Miller's track record of calling market bottoms also hasn't been so hot.

In late April, one month after Bear Stearns' spectacular fall, Miller told his shareholders: "I think we will do better from here on, and that by far the worst is behind us."

All told, the severe market sell-off has provided ample opportunities.

"This market is very unusual because since the end of the second quarter, it has been a pure scramble for liquidity, which accelerated obviously post-Lehman Brothers and people sold without regard to value at all," Miller said.

"So at the end of the end of this quarter, every sector in the market has companies that represent what we think are exceptional value." (Editing by Leslie Adler)