State-owned Mubadala also said it plans to become oneo f the 10 biggest investors in Fairfield, Connecticut-based GE, which has lost about a quarter of its value since April 11. That's when Chief Executive Officer Jeffrey Immelt said 2008 profit would be less than forecast because of frozen credit markets.

GE and Mubadala will each contribute US$4 billion in equity over three years to the fund, aiming to reach US$40 billion in assets. GE, the world's biggest maker of power-plant turbines and medical imaging machines, will pursue financing for the region's power plants, hospitals, roads and water treatment. The company will also build a research center in Abu Dhabi's new Masdar City.

"It's a very savvy move," said Peter Sorrentino, who helps manage US$16.7 billion at Cincinnati-based Huntington Asset Management, including 2.9 million GE shares, said in an interview. For GE, working with the state-owned company "opens doors and definitely elevates their ability to get deals done in an area where there's going to be a lot of capital spending."

GE rose 81 cents to US$28.50 at 4:15 p.m. in New York Stock Exchange composite trading Tuesday and has declined 30 percent in a year.

The company last year got more than half its sales from outside the U.S. for the first time, part of Immelt's strategy to tap faster-growing regions and industries.

"What it allows us to do is get good geographic and asset spread of risk," Immelt, 52, said on a call with reporters.

"More importantly it gives us the opportunity to get higher-return opportunities in commercial finance, which is what we've talked about over the last nine months."

The fund may reach its US$40 billion in assets in about a year to 18 months, Immelt and Khaldoon Al Mubarak, Mubadala's CEO and managing director, said on the call. GE will set up the fund's origination mechanisms initially, the executives said.

There are "no shortage of opportunities" for the fund to invest and eventually it will look beyond the region, Immelt said. Financial services should still make up about 45 percent of the total earnings at the parent company this year, he said.

The agreement doesn't change GE's forecast for this year, Immelt said. In April he triggered the biggest one-day decline in GE shares since 19987 when he said 2008 earnings may rise zero to 5 percent, to US$2.20 to US$2.30 a share, less than his prior forecast of at least US$2.42.Immelt strategy

Immelt is selling slower-growing units tied to consumers in developed economies. Earlier this month, he agreed to sell GE's consumer-lending operations in Japan for about US$5.4 billion, one day after saying he will pursue the spinoff of GE's consumer lighting and electrical switches business in addition to the century-old appliances unit. He's also selling to divest the company's U.S. private-label credit card unit.

The arrangement may also give General Electric a partner who creates a relationship with a sovereign power that may lift obstacles to starting business in the region, said William Batcheller, senior vice president at Butler Wick & Co. from Youngstown, Ohio. The firm manages US$85 million including GE shares.

"Think about all the companies that had trouble trying to get businesses going in the Middle East -- all the oil companies all the chemical companies that have had a hard time dealing with the in-place government entities," Batcheller said. "This looks like a pretty good start for that."

Investments

Kaldoon Al Mubarak declined to give a timeframe for when Mubadala might reach its goal to become a top-10 GE shareholder. GE has about 9.97 billion shares outstanding, and its current largest stakeholder is Barclays Plc through its Barclays Global Investors division with 392.6 million shares, or 3.94 percent, of the total outstanding at the end of March. About 10 percent of GE's shareholders are from outside the U.S., Immelt said.

"It makes a lot of sense for us to become shareholders in GE," Al Mubarak said on the call. "We like the company. We think under Jeff's management it's an institution that's done extremely well. We think it's valued today attractively from our perspective."

Under the partnership announced Tuesday, GE will also invest US$50 million in Masdar's Clean Tech fund, while Mubadala will invest US$200 million in GE Industrial Investment Partners, a new program to provide development money to health-care, energy and transportation industries.

Abu Dhabi

Abu Dhabi, which holds about 8 percent of the world's oil reserves, is investing in other industries as it seeks to diversify its economy. It's targeting aerospace, energy, water and health care as key industries. Mubadala's investments have included Carlyle Group and Ferrari.

The Middle East region is one of GE's fastest-growing, providing more than US$5 billion of its US$172.9 billion in sales last year. That's a 50 percent rise from 2006, driven by water treatment, power generation, oil and gas exploration equipment and jet engines through the GE Infrastructure segment.

The clean energy center, with 100 scientists, will be an extension of GE's four other global research centers and focus on Masdar, which Mubadala aims to be a carbon neutral, zero-waste city in Abu Dhabi. The companies also plan run an executive training center at Masdar.

Mubadala, which is contributing their own debt-capital for the venture, may also benefit from GE's loan origination resources, which rely on the GE's AAA credit rating to borrow at low costs, creating more profit potential.

Immelt told investors July 11 that GE remains committed to its AAA rating from Moody's Investors Service and Standard & Poor's Corp., the highest available, and that the company doesn't need an outside capital infusion to maintain the rating at its finance units.

Morgan Stanley advised GE on the deal, while Mubdala was advised by Goldman Sachs and Lehman Brothers Holdings Inc.