HARTFORD, Connecticut (AP) — General Electric Co., the industrial powerhouse that makes everything from jet engines to light bulbs, cut its earnings forecast for the year yesterday, blaming volatile financial markets that have damaged 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."

Yesterday'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, the company's financial business that provides consumer financing for car loans, mortgages outside the United States, and credit cards. Its commercial side finances real estate, 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 percent.

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 yesterday.

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

Still, the company does not plan to exit the business, which analysts say has been hurt by write-downs in England's weakening mortgage market and delinquencies at its credit card business.

"We don't think that business model is broken," Immelt said.

Shares of GE, a Dow Jones industrial component, rose 6.4 percent, or $1.57, to $26.16, in afternoon trading. They have traded between $22.16 and $42.15 in the past 52 weeks.

But the Fairfield, Connecticut-based company does plan to reduce its dependence on GE Capital, whose size and importance at the industrial giant surged under Jack Welch, the company's previous CEO, and his successor, Immelt.

Chief financial officer Keith Sherin told analysts that a smaller, more focused unit was better for investors in the current environment. After scaling back, GE aims to get 40 percent of its earnings from financial services and 60 percent from industrial business by the end of 2009, compared with a near even split currently.

For now, however, GE has given up its search for a buyer of its $30 billion private label credit card business. "That hasn't gotten any better in the last three weeks," Sherin told analysts.

GE also plans to boost the capital for GE Capital, reduce the earnings dividend the unit must pay the parent company to ten percent from 40 percent and suspend the current GE stock buyback.