NEW YORK, Oct 1 (Reuters) - Derivatives traders were pricing General Electric Co's (NASDAQ:GE) finance arm at junk levels on Wednesday amid worries that a deepening credit crunch is raising financing costs for the top-rated firm.

General Electric Capital's five-year credit default swaps rose by 150 basis points to 700 basis points, or $700,000 a year to insure $10 million of debt, according to data from Phoenix Partners Group.

The swaps are now trading as though GE Capital were rated "B2," a junk category 14 steps below its actual rating of "triple-A," according to the credit strategy group of Moody's Investors Service.

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GE Capital's swap spreads had hit a record wide of 740 basis points earlier on Wednesday and are up from about 398 basis points a week ago.

"Financing costs remain prohibitively high, forcing these operations to offer credit at a potential loss or risk losing a potential sale," New York broker dealer Tradition Asiel Securities said in a research note on Wednesday.

"We believe revenues or financing costs will ultimately be impacted and have a negative effect on earnings," the firm said.

Deutsche Bank cut GE's 2008 earnings per share estimate by 9 percent to $2.

GE Capital's bonds also weakened, sending yields higher relative to those on U.S. Treasuries as investors priced in greater risk.

Yields on GE Capital's 5.625 percent notes due in 2018 rose to 486 basis points over Treasuries, up from 417 basis points on Tuesday, according to MarketAxess. Those notes now yield 8.5 percent, a level more common on bonds with ratings at the lowest investment grade.

They were yielding just 5.66 percent, or 200 basis points over Treasuries, when they were sold in April. (Reporting by Dena Aubin; Editing by Tom Hals)

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