Tue Jul 22, 2008 10:11am EDT

By Scott Malone

BOSTON (Reuters) - Conglomerate General Electric Co (GE.N: Quote, Profile, Research, Stock Buzz) and Abu Dhabi investment agency Mubadala Development Co said on Tuesday they have entered into an $8 billion joint venture with an initial focus on providing commercial finance in the Middle East and Africa.

The two companies also plan to work together in the clean energy and water, aviation, and oil and gas sectors, they said.

The move reflects GE's strategy of shifting its financial operations away from volatile segments such as those influenced by U.S. consumer spending toward areas that provide higher growth. Shares of the second-largest U.S. company by market capitalization have been battered this year amid concerns about its hefty finance arms.

"What it allows us to do is get good geographic and asset spread of risk, but more importantly it allows us to reallocate to higher-return opportunities in commercial finance," Jeff Immelt, chief executive of GE, told reporters on a conference call.

Over the next 18 months the companies plan to invest about $40 billion in commercial and infrastructure projects across the region, GE's fastest-growing market.

PLANS FOR TOP-10 STAKE

The companies said Mubadala "plans over time" to become one of GE's 10-largest shareholders by acquiring shares in the open market.

"It makes a lot of sense for us to become shareholders in GE," said Mubadala CEO Khaldoon Al Mubarak. "We like the company. We think that under Jeff's management this is an institution that has done extremely well."

Al Mubarak said Mubadala currently has no stake in GE. He declined to specify a timeframe for his company's targeted top-10 investor position.

The companies also aim to establish a clean energy technology center in Masdar City, a new city in Abu Dhabi that aims to be carbon neutral. GE plans to commit up to $50 million for Masdar's second clean-tech fund.

Growth in the Middle East has been a major thrust for GE in recent years. Last year the company generated $5 billion in revenue in the region, up 50 percent from the prior year.

Morgan Stanley advised Fairfield, Connecticut-based GE on the deal.

GE shares were up 36 cents, or 1.3 percent, to $28.05 in early Tuesday trading on the New York Stock Exchange. So far this year, GE shares are down about 25 percent, a steeper drop than the 14 percent slide of the Dow Jones industrial average .DJI.

(Editing by Mark Porter and Derek Caney)