"The markets are beginning to anticipate a downgrade to double-A territory," said Gross on CNBC television, noting that GE's stocks and bonds are widely held by many institutional investors, including big sovereign wealth funds.

Pacific Investment Management Co, known as Pimco, is the world's biggest bond fund and manages more than $800 billion in assets.

GE shares fell more than 10 percent early Wednesday, and in late morning were down 7.9 percent at $6.46.

"There are significant holdings by sovereign wealth funds in General Electric and General Electric Capital because of its triple-A -- the same thing with Berkshire Hathaway because of its triple-A," Gross said. "Now that the market recognizes that the triple-A, at least in terms of GE, may disappear, there are forced sellings ahead of the downgrade."

Many pension and endowment funds would no longer be able to hold GE debt if it lost the triple-A rating, and a number of mutual funds and pension funds have guidelines that steer money managers away from stocks priced below $10.

"You see substantial, hundreds of millions of bonds coming out for sale in order to beat the triple-A downgrade and that, of course, pressures CDS spreads, widens out yields, and it gives a signal to the stock market that something is wrong," Gross said.

Credit default swaps, known as CDS, are over-the-contract contracts that bet on whether a company will default on its bonds within a fixed period of time.

(Reporting by Richard Leong and Jennifer Ablan; Editing by Leslie Adler)