UPDATE 5-U.S. FTC sues Intel for abusing market dominance

* FTC says Intel sought to shut out chip competitors

* FTC's Feinstein says Intel runs roughshod over law

* Intel shares fall 2 pct; AMD, Nvidia both rise

* Intel calls FTC case misguided, remedies unprecedented
(Adds quote from complaint, analyst, updates shares)

By Diane Bartz

WASHINGTON, Dec 16 (Reuters) - The U.S. government accused
Intel Corp (INTC.O) of illegally using its market dominance to
stifle competition, in a lawsuit that seeks to stop the
marketing practices that have helped maintain Intel's status as
the world's biggest chip maker.

The suit, filed on Wednesday, pushed Intel shares down 2
percent and boosted the stocks of competitors Advanced Micro
Devices Inc (AMD.N) and Nvidia Corp (NVDA.O), which have
accused the chip giant of anti-competitive
behavior.

The U.S. Federal Trade Commission said Intel has been
trying to shut out competitors in maneuvers that date back to
1999 -- the same year the agency settled a previous antitrust
fight against the company.

"Intel has engaged in a deliberate campaign to hamstring
competitive threats to its monopoly," said Richard Feinstein,
director of the FTC's Bureau of Competition. The agency opened
a formal probe of Intel in mid-2008.

Intel, which makes 80 percent of the world's central
processing units, the brains of personal computers, faces
similar accusations in Asia, Europe, in private lawsuits and in
a suit filed by the New York attorney general. Intel agreed in
November to pay AMD $1.25 billion to settle their litigation.

Intel called the FTC suit "misguided" and General Counsel
Douglas Melamed said the company would aggressively defend
itself. "Intel has not violated the law," he said.

Melamed said the case should have been settled.

"Settlement talks had progressed very far but stalled when
the FTC insisted on unprecedented remedies -- including the
restrictions on lawful price competition and enforcement of
intellectual property rights set forth in the complaint -- that
would make it impossible for Intel to conduct business," he
said.

Feinstein disagreed with Intel's characterization of the
remedies as unprecedented. Intel would not face financial
penalties but the remedies would require a shift in its pricing
structure, he said.

The FTC's complaint said Intel punished PC makers that
bought chips from AMD or Via Technologies Inc (2388.TW) and
changed software to hurt the performance of competing CPUs, or
central processing units.

"Intel threatened OEMs (computer makers) that considered
purchasing non-Intel CPUs with, among other things, increased
prices on other Intel purchases, the loss of Intel's technical
support, and/or the termination of joint development projects,"
the FTC said in its complaint.

BOOST FOR AMD, NVIDIA SHARES

While AMD has settled its dispute against Intel, graphics
chip maker Nvidia has continued its fight, calling for scrutiny
of Intel's graphics processing units (GPUs), often used in
mobile phones, personal computers and game consoles.

"We are particularly pleased to see scrutiny being placed
on Intel's behavior toward GPUs, which have become an
increasingly important part of the PC industry," Nvidia said in
a statement.

ThinkEquity analyst Vijay Rakesh said the FTC suit was a
distraction for Intel, but not much more.

"I don't think it will take away from their focus on
products. ... I don't think it necessarily changes the
landscape much," he said. "It's more a headline positive for
Nvidia."

Shares of Nvidia jumped 8.5 percent and AMD rose nearly 4
percent.

A trial before an FTC administrative judge could begin in
September, Feinstein said. If Intel loses at that level, it can
appeal to the full commission. The FTC said the suit could take
two years to resolve, though many analysts expect a
settlement.

"The strategic implications are quite significant given
that what the FTC is really saying is that Intel better watch
how it competes in graphics going forward," Hans Mosesmann of
Raymond James Global Research wrote in a research note.

A wide range of antitrust enforcers have gone up against
Intel for its controversial pricing incentives.

Last month, New York Attorney General Andrew Cuomo accused
Intel of threatening computer makers and paying billions of
dollars of kickbacks to maintain market supremacy.

The European Commission fined Intel $1.2 billion in May
2009 and ordered it to change certain business practices.

In June 2008, South Korea fined Intel some $26 million,
finding it offered rebates to PC makers in return for not
buying microprocessors made by AMD.

Shares of Intel were down 2 percent at $19.39 in afternoon
trading on the Nasdaq.

The case is before the FTC. It is "In the Matter of Intel
Corporation," docket number 9341.
(For BREAKINGVIEWS commentary, click on [ID:nN1659669])
(Additional reporting by Gabriel Madway and Alexei Oreskovic;
Editing by Ted Kerr, Tiffany Wu and Matthew Lewis)