Dec. 2 (Bloomberg) -- General Electric Co. rose the most since 1980 in New York trading after saying fourth-quarter profit would be in line with analysts’ estimates and reassuring investors that steps to bolster the finance arm will help protect the dividend.

GE gained 14 percent after repeating plans to keep its annual dividend in 2009 and outlining cost-cutting and funding plans for the GE Capital unit. Fourth-quarter profit will be 50 to 52 cents a share, the low end of the previous forecast, excluding a potential charge of $1 billion to $1.4 billion, the Fairfield, Connecticut-based company said.

The plans created “a small collective sigh of relief,” said Peter Sorrentino, a senior portfolio manager at Cincinnati- based Huntington Asset Advisors, which oversees 6.12 million GE shares. “The fact that they were able to narrow the estimate range, albeit at the lower end, was reassuring as well.”

Chief Executive Officer Jeffrey Immelt is shrinking the finance unit and restructuring assets to restore profit growth at GE Capital in 2010, while shifting to funding sources less susceptible to the global credit crisis. GE Capital will cut the amount of commercial paper it issues, reduce leverage and accelerate how much it collects in deposits, Chief Financial Officer Keith Sherin said in an interview.

Finance profit will be $8 billion this year including the charge and will drop to $5 billion in 2009, GE said.

“We’ve made dramatic progress in our funding model,” said Sherin, who repeated the board vote to keep the $1.24 a share dividend in 2009 and protect GE and GE Capital’s top-level AAA rating. “We’re being realistic about this credit environment that we’re in.”

Shares Soar

GE rose $2.11 to $17.61 at 4:02 p.m. in New York Stock Exchange composite trading, the biggest increase since July 28, 1980. The shares have dropped 53 percent this year. The company had previously predicted profit of 50 cents to 65 cents a share, and today’s range was in line with the 51-cent average of 14 estimates in a Bloomberg analyst survey.

“They’ve managed to shave expectations with regards to GE Capital in 2009, without decimating confidence in the overall company,” said Nick Heymann, an analyst with Sterne Agee & Leach Inc. in New York who rates GE a “hold.” That will help restore investor confidence that the “dividend is sustainable.”

Immelt is paring the finance units to less than 40 percent of GE’s profit next year, down from about half last year as he reduces debt and focuses on businesses that generate more earnings. The company aims to eventually have finance account for 30 percent of profit and NBC Universal contribute 10 percent, while two GE Infrastructure units generate 60 percent.

Less Debt to be Issued

The CEO, who will present GE’s full 2009 outlook on Dec. 16, has cut his profit target twice this year and raised more than $15 billion in cash through selling stock. He also has taken advantage of two new federal programs for financial companies as he seeks a level playing field with banks.

Sherin today declined to give details on the non-finance segments until that regularly scheduled meeting.

The company now plans to issue about $45 billion in long- term debt next year, less than the $66 billion it has maturing, and reduce commercial paper to $50 billion in 2009, less than the $75 billion it said previously. GE is reducing its leverage ratio to 6 to 1.

GE would consider adding $5 billion in funds to GE Capital to help meet that leverage ratio, Sherin told investors on a Webcast today. The money would come from existing funds and wouldn’t require raising money from outside the parent, he said.

‘Well-Positioned’

Loss provisions will rise to about $7.2 billion in 2008 and to about $9 billion in 2009, Sherin said. GE Capital’s profit next year excluding the charge will be about $9 billion, as forecast, the company said today.

GE wants GE Capital to resume paying 40 percent of its profit to the parent company in 2010, from a currently reduced rate of 10 percent, Sherin told investors. That will be helped by potential profit growth at the finance unit of about 10 percent in 2010 if markets begin to recover.

“We believe we have the company well-positioned for what’s going to be a very difficult cycle,” Michael Neal, the GE vice chairman who oversees GE Capital, said on the call.

Moody’s Investors Service today affirmed its AAA rating and “stable” outlook designation for both the parent company and finance unit.

In its statement, Moody’s said it expects GE Capital to earn at least $5 billion in each of the next several years; that GE Capital can restore its historic payment level to the parent company in 2010; and that the non-finance units will generate cash flow that exceeds $16 billion in 2010.

Dividend Cost

Moody’s also said it expected “stress” on GE’s non-finance units will ease, either through an increase of GE Capital payments to the parent or “through the reduction of the GE external dividend” in that timeframe.

“If the dividend stress on GE industrial does not abate by 2010, the firm’s long-term ratings could face negative pressure,” Moody’s wrote.

The shareholder dividend, which GE announced in September would be kept level for the first time in 32 years, costs GE about $13 billion annually based on the number of shares outstanding on Oct. 2. That payout will be covered by cash generated from operations and dispositions this year of about $18 billion, GE said today.

In 2009, a $13.4 billion dividend payout should be covered by cash generation, the GE Capital payment to the parent company and dispositions totaling about $16 billion, according to a chart from today’s presentation.

Still Profitable

GE Capital has made a profit every quarter this year even amid the deepest global financial crisis since the 1930s. The finance units earned about $7 billion in the first nine months of this year.

The results still fell short of targets, leading GE to pare costs and to say it will count on its industrial businesses such as jet engines and power generation and its NBC Universal entertainment unit for a greater percentage of its profit.

The parent company said Nov. 18 it was seeking $2 billion in cost cuts at GE Capital, net of expenses, as it pares an unspecified number of the unit’s 75,000 jobs and shrinks its contribution to total sales. The reorganization announced in November includes three new units.

GE Capital is using two federal programs that help it sell debt, its main funding source. The first is the Federal Reserve’s commercial paper funding facility, and the second is use of debt insurance through a Federal Deposit Insurance Corp. program. The commercial paper program expires in April unless it is renewed; the FDIC debt insurance program is for issues through June 2009 and expires in 2012.

Immelt on Sept. 25 slashed his forecast for this year’s profit for the second time to $1.95 to $2.10 a share as the financial crisis deepened. In October, GE raised an additional $3 billion in the sale of preferred shares to investor Warren Buffett‘s Berkshire Hathaway Inc. and $12.2 billion in common stock.

To contact the reporters on this story: Rachel Layne in Boston at rlayne@bloomberg.net

Last Updated: December 2, 2008 16:54 EST