NEW YORK — Bear Stearns Cos. and China's government-controlled Citic Securities Co. agreed yesterday to invest $1 billion in each other and combine some operations in Asia, giving the U.S. brokerage an entrance into the insular Chinese financial sector.

The investment is the biggest of its kind between U.S. and Chinese financial institutions, and highlights China's increasing strength in global financial markets. For Bear Stearns, battered this summer by the slumping mortgage markets, the pact positions it as a bigger player in one of the world's fastest-growing economies.

Bear Stearns Chief Executive James Cayne, who labeled the agreement as "historic," has been struggling in the past few years to expand overseas and better compete with larger rivals.

"The strategic alliance will encompass a broad collaboration in the Chinese market where the two companies will work together to develop new financial products and services to meet their rapidly evolving needs," Cayne said in an e-mail to staff sent yesterday.

Under the agreement, Citic will invest about $1 billion and receive securities that convert over time into a roughly 6 percent equity stake in Bear Stearns. The Beijing-based investment bank has an option to acquire up to a 9.9 percent stake, which would make it one of Bear's largest shareholders.

Bear Stearns will invest $1 billion into Citic's debt that will later be converted into about a 2 percent stake. It also has options to buy another 5 percent through other securities exercisable over time.

The pair will form a joint venture based in Hong Kong that will offer capital markets services across Asia. The 500 bankers, traders and analysts Bear Stearns employs in Asia will join the 50-50 venture.

The two-way nature of the alliance was a surprise to some analysts. There has been heavy speculation that Cayne was seeking to inject cash into the company after Bear Stearns posted a 62 percent plunge in third-quarter earnings.

Brad Hintz, an analyst with Sanford C. Bernstein, said the pact is more important to Citic in the long run as it evolves into a more global competitor.

"Bear Stearns will get more profit out of their Asian operations," Hintz said. "But, more importantly, over the long term Bear Stearns will end up with a credible competitor who will have learned global finance from Bear Stearns themselves."

That's what happened to Morgan Stanley, which owns 33 percent of China International Capital Corp. The Chinese brokerage began to distance itself from Morgan Stanley several years ago, and left the U.S. investment bank with no management control.

U.S. investment banks have been courting Chinese counterparts to take advantage of the dramatic performance in local stock markets, where prices have risen more than fivefold in a few years.

So far this year, Citic has underwritten 16 securities offerings — including initial public offerings — worth about $10.8 billion, according to Thomson Financial.