CIT woes could have silver lining for GE-analysts

* GE Capital could get chance to raise prices

* GE seen being selective in eyeing acquisitions

BOSTON, July 16 (Reuters) - The woes of embattled U.S. lender CIT Group Inc (CIT.N) could provide a bit of breathing room to larger competitor GE Capital, by giving it a chance to cherry-pick customers or assets, analysts said on Thursday.

CIT, which lends to hundreds of thousands of small and mid-sized U.S. businesses said late Wednesday that government bailout talks had ended, a move that could set the stage for bankruptcy. [ID:nN16402649]

A failure of CIT could also make it easier General Electric Co's (GE.N) hefty finance arm to raise interest rates on new commercial loans.

"Taking a big competitor out of the market, even at the lower tiers of credit, tightens pricing," said Steven Winoker, senior analyst at Bernstein Research in New York.

Worries about the future of CIT could help the largest U.S. conglomerate's finance arm to woo away customers from its rival, analysts said.

"CIT's customers might run to GE Capital, I don't think that GE Capital's customers would run someplace else," said Daniel Holland, equity analyst at Morningstar in Chicago.

GE shares were down 14 cents, or 1.1 percent, to $12.10 in midday trading on the New York Stock Exchange, a day before the world's biggest maker of jet engines and electricity-producing turbines is scheduled to report its second-quarter financial results. The slide in GE shares roughly tracked a 1.6 percent decline in financial stocks as measured by the KBW Bank Index .BKX.

The largest U.S. conglomerate has been working to pare back its finance arm -- which has become the biggest drag on corporate earnings during the current recession -- to represent no more than 30 percent of earnings. Analysts said they expected GE management to be very selective in sizing up pieces of CIT as acquisition targets, although its aircraft finance unit could be attractive.

Profit at GE Capital has been hard hit by rising defaults on loans in the face of a slowing economy, with heavy investments in commercial real estate a drag.

A recent proposal by the Obama administration to revamp financial regulation, that could force GE to spin off the finance business, has added to investors' worry, but the company has said it would resist such a move.

Bernstein's Winoker also said he did not take the U.S. Treasury Department's decision not to step in on behalf of CIT as a sign that GE Capital would not receive government assistance if it needed it.

"GE is no CIT," Winoker said. "Clearly, it's too big to fail from a government perspective."

He also noted that GE had succeeded in selling about $6 billion in debt this year that was not backed by the government programs, a sign of investor confidence. (Reporting by Scott Malone; Editing by Tim Dobbyn)