General Electric three-month chart

General Electric Co., an industrial powerhouse that makes everything from jet engines to light bulbs, cut its earnings forecast for the year on Thursday, blaming volatile financial markets that have hurt the profitability of its loan and lease business, which accounts for almost half its income.

GE, a bellwether of the U.S. economy, warned that its GE Capital unit would face "difficult conditions in the financial services markets that are not likely to improve in the near future."

GE plans to cut the dividend GE Capital must pay the parent company and suspend the current GE stock buyback. Through the third quarter, GE has repurchased about $3.5 billion worth of shares.

Thursday's announcement came as Wall Street grappled with the collapse of Lehman Brothers, the government takeover of insurer AIG, and fierce debate over a $700 billion plan for Washington to bail out banks weakened by risky mortgage-backed securities.

That turmoil has hurt GE Capital, which provides consumer financing for car loans, mortgages outside the United States, and credit cards. Its commercial side finances real estate, does corporate lending and leases jets.

The unit has been caught in the downdraft hurting financial services stocks. Since mid-September, when the financial markets were rocked by the news of Lehman and AIG, GE's share price has fallen about 23 per cent.

GE chairman and CEO Jeff Immelt was not encouraging about GE Capital's short-term prospects.

"We expect to see higher losses and loss provisions and lower gains," he told analysts in a conference call Thursday.

The parent company now expects profit for the year to fall about 10 per cent to between $19.5 billion US and $21 billion, or $1.95 to $2.10 a share, from its prior forecast of $22 billion to $23 billion, or $2.20 to $2.30 a share.

On average, analysts surveyed by Thomson Financial had expected per share profit of $2.21.

GE anticipates earnings from financial services will total about $2 billion in the third quarter. In the second quarter, the GE Money and Commercial Finance segments made a combined profit of $2.45 billion.

Shares of GE, a Dow Jones industrial component, closed at $25.68, up $1.09 or 4.4 per cent, on the New York Stock Exchange. They have traded between $22.16 and $42.15 in the past 52 weeks.