Ford Motor Co said on Wednesday it was reducing its debt by $4 billion, and has cleared $7 billion of debt from its overloaded balance sheet this quarter.

Ford announced it would pay $3.8 billion in cash to a trust fund for retired union autoworkers, defusing concerns that it would satisfy the debt by issuing more stock.

The automaker will also make a $255 million cash payment on previously deferred quarterly distributions on securities.

Ford stock dipped below $10 per share on Tuesday, partly on speculation that it would meet debt payments by issuing more stock.

In early trading on Wednesday, Ford shares rose about 5 percent to $10.40 apiece on the New York Stock Exchange, while the Dow Jones Industrial Average was down about 0.25 percent.

Ford ended the first quarter with automotive debt of $34.3 billion, but paid down $3 billion of debt in April that will be reflected in second-quarter results. The two payments leave about $27 billion debt remaining, Ford said.

We expect to continue to improve our balance sheet as we deliver on our plan, Ford CEO Alan Mulally said in a statement.

Importantly, our business results make it possible to take these actions while still accelerating the investments we are making in our business to serve our customers with the very best cars and trucks, he said.

Ford, which surprised Wall Street with its first annual profit in four years last year despite a severe downturn, has forecast a solid profit in 2010.

Ford was the only U.S. automaker to avoid bankruptcy last year. It borrowed more than $23 billion in late 2006, putting up nearly all of its remaining assets, including the familiar blue oval logo to maintain a cash cushion for its turnaround.

Wednesday's move will save more than $470 million in annual interest payments, Ford said.

(Reporting by Bernie Woodall and Soyoung Kim; Editing by Maureen Bavdek)

Ford Motor Company