Oct. 1 (Bloomberg) -- General Electric Co. said it has been able to sell corporate paper and fund operations without tapping bank lines, seeking to quash speculation that led to a surge in its credit default swaps and a slump in the stock.

``We see no reason for the defaults widening,'' Fairfield, Connecticut-based GE said in a statement today. ``Despite current market disruptions, our CP funding has gone smoothly. We have over-funded every day, including today, with good demand for our paper in term maturities.''

Chief Executive Officer Jeffrey Immelt last week said 2008 profit will be less than previously predicted, the second time this year he cited turmoil in financial markets in lowering the forecast for the second-largest U.S. company. GE today repeated Chief Financial Officer Keith Sherin's Sept. 25 comment that the $62 billion in bank lines backing up its corporate paper will ``absolutely not'' be tapped.

Credit-default swaps protecting against a default by GE Capital Corp. for five years rose 100 basis points from yesterday to 650 basis points and earlier traded as high as 740 basis points, according to broker Phoenix Partners Group. An increase in the contracts, used to hedge against losses or to speculate on creditworthiness, suggests a decline in investor confidence.

GE shares fell $1.89, or 7.4 percent, to $23.61 at 1:06 p.m. in New York Stock Exchange composite trading, as Deutsche Bank AG said profit will be hurt by ``deterioration'' at its financial- services unit. On Sept. 22, U.S. regulators added more than 90 companies, including GE, to a list of stocks temporarily protected against short sales. The ban runs through Oct. 2.

Commercial Paper

General Electric last week suspended its stock buyback, shifting capital to protect its dividend and AAA credit rating. The company said it has slashed its commercial paper to below $90 billion, a goal Sherin announced last week to investors.

``I've seen no evidence they haven't been able to roll CP,'' said Ricardo Kleinbaum, a credit analyst at BNP Paribas in New York. ``They can roll CP not only in the U.S. and Europe, but throughout emerging markets. They have no daily maturities andthey market directly to individual customers. They're not going to be subject to the whims of investors that others are.''

GE is willing to pay investors 2.05 percent to sell commercial paper due in seven days, 15 basis points less than yesterday, Bloomberg data show.

GE's debt protection costs have more than doubled the past eight days on concerns that the company will have trouble refinancing commercial paper that it uses to fund operations and will have to tap backup credit lines from its bankers, said Tim Backshall, chief strategist at Credit Derivatives Research LLC in Walnut Creek, California.

Short-Sale Ban

The Sept. 22 short-sale ban on GE stock may have spurred short-sellers to look for other ways to bet on a decline in the company's value, Kleinbaum said. The Securities and Exchange Commission prohibited investors from betting against major financial companies because of concern speculators were unfairly punishing the shares. GE, whose products include jet engines, medical equipment and power turbines, last year received more than half its profit from financial services.

``The worry is it becomes self-fulfilling,'' Kleinbaum said. ``Perhaps what's going on here is, with restrictions on short-selling, you can still short in the credit markets.''

GE Capital Profit

Unlike many banks and investment firms, GE still expects to make a profit at its finance arm this year. The finance profit may exceed $9 billion, including $2 billion in the third quarter, the company said Sept. 25.

GE Capital will reduce its leverage, or debt-to-equity ratio, to about 6-to-1 from a 7.2-to-1 ratio at the end of the second quarter. That will help keep the AAA credit rating, which gives the company an advantage in cost of funding, Immelt and Sherin told investors on the call last week.

GE Capital, which is done with its debt refinancing in 2008, has about $67 billion in long-term debt maturing next year, Sherin said. GE expects to refinance about $60 billion of that and is capable of doing ``much less'' if it needs to, Sherin said last week.

To contact the reporter on this story: Rachel Layne in Boston at rlayne@bloomberg.net; Shannon D. Harrington in New York at sharrington6@bloomberg.net

Last Updated: October 1, 2008 13:11 EDT