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CNH Global N.V. (CNH) said Thursday it will idle its construction machinery manufacturing during the first half of the year and reduce farm equipment production in response to lower demand and rising inventories.

The company, a unit of Fiat S.p. A. (FI.MI) warned that its 2009 sales could fall by as much as 20% from 2008, primarily because of dismal conditions in the construction sector.

The company didn't provide specifics on the reduction in farm equipment production, but said it would focus mostly on small horse-power tractor production.

Its shares fell 23.61% to $11.10 Thursday.

Tightening credit conditions in recent months have put the brakes on construction spending that typically drives sales of CNH's bulldozers and excavators

The Illinois-based company provided no guidance on earnings for the first-quarter or 2009, citing the uncertainty in the company's business. Construction equipment accounts for about 30% of CNH's business, while 65% comes from agricultural machinery.

"Construction equipment is very weak," said Rubin McDougal, chief financial officer, on a call with analysts. "You should expect the first quarter to have similar trends that we saw in the fourth quarter."

The company's fourth-quarter profit fell by 2.5% from 2007 to $117 million, or 48 cents a share, missing analysts expectation of 69 cents a share. Sales fell by 10% to $3.66 billion.

CNH, the world's second largest maker of farm machinery after Deere & Co. (DE), said it expects U.S. farm income to be near record levels in 2009 as commodity prices remain elevated while farmers' outlays for fuel, fertilizer and other production expenses trend lower.

Nevertheless uncertainty about credit and the economy are likely to discourage farmers for buying equipment in the first half of the year.

The company expects sales of high-horsepower tractors to fall by 10% to 15% in the first half of 2009 and end the year down by 5%.

CNH's fourth quarter diminished the company's strong performance earlier in the year. Sales in 2008 rose 16% to $17.3 billion.

The company also reveled that its financial services unit is seeking an alternative funding source. Sales in the quarter slipped 10% from a year ago to $3.66 billion amid uncertainty over whether Fiat will continue to finance customers purchases Fiat provided $5.2 billion in 2008 to CNH's financial unit.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

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