updated 3/12/2009 11:38:26 AM ET 2009-03-12T15:38:26

General Electric Co. lost its prized top credit rating from Standard & Poor's over fears of rising loan losses and lower earnings at its lending arm.

The credit rating agency lowered GE's long-term debt ratings to 'AA+' from 'AAA' Tuesday, a one notch reduction that markets had long expected. The move means it will be more expensive for GE to raise money in the credit markets.

Company shares rose $1.01, or nearly 12 percent, to $9.50 in morning trading after the announcement. Shares had lost about half their value this year, pushed down by investors frightened by the grim outlook for GE's lending arm, GE Capital.

Many analysts had expected a much deeper ratings cut, given GE Capital's struggles with rising loan losses and fears that it more write-downs are looming. And while GE has said defending its coveted credit rating was a priority, CEO Jeff Immelt has recently said he was prepared to fund the company at a lower level.

"I don't believe GE is surprised to see this," said Dilip Sarangan, an analyst with Frost & Sullivan.

GE Capital faces higher losses on its loans in areas such as real estate as the global financial crisis worsens, S&P said. If it stood on its own, the ratings agency would give GE Capital a much lower 'A' rating. The agency considers GE's outlook stable.

The Fairfield, Connecticut-based company, whose wide-ranging business include jet engines, the NBC network, and loans for energy projects, was one of just six non-financial companies that hold the top rating from S&P. GE was first given the 'AAA' rating in 1956.

GE has taken steps recently to shore up GE Capital's finances. It is restructuring the unit, lowering its debt and conserving cash through steps that included a 68-percent cut of its dividend. The company had not lowered its quarterly payout since the Great Depression.

GE has also raised $48 billion in cash this year, most of its long-term debt needs for 2009. It has taken part in a federal plan that allows companies to borrow with the backing of the government's top credit rating. The company said the downgrade will not have a significant impact on its funding or operations.

"We will continue to run GE with the disciplines of a Triple-A company," Immelt said in a statement Thursday.

John Atkins, a fixed-income analyst at IDEAGlobal.com, said it remained unclear what the impact will be on GE's borrowing costs. Even with the 'AAA' credit rating, the cost of insuring debt of GE Capital had been in distressed territory recently.

(MSNBC is a joint venture of Microsoft and NBC Universal, which is a GE company.)

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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