The U.S. government filed suit against Intel Corp on Wednesday, accusing the chip giant of illegally using its market dominance to stifle competition for a decade.

The Federal Trade Commission, one of two U.S. agencies that enforce antitrust law, said Intel was trying to shut its competitors out of the market.

Shares of Intel fell nearly 2 percent on the news, while shares of competitors like Advanced Micro Devices Inc rose 6 percent and Nvidia Corp rose 7 percent.

Intel has engaged in a deliberate campaign to hamstring competitive threats to its monopoly, said Richard Feinstein, director of the FTC's Bureau of Competition.

It's been running roughshod over the principles of fair play and the laws protecting competition on the merits.

Intel makes 80 percent of the world's central processing units, the brains of personal computers, and has been accused by other antitrust bodies and rivals of acting illegally to maintain that dominance.

The FTC's case is misguided, Intel said, adding that the agency is trying to make new rules for regulating business conduct that would harm consumers by reducing innovation and raising prices.

In November, Intel agreed to pay AMD $1.25 billion to settle their legal disputes. AMD agreed to withdraw essentially all its regulatory complaints and litigation against Intel, ending a global campaign that it had waged for 12 years.

But graphics chip maker Nvidia has continued its fight.

We applaud today's action by the U.S. Federal Trade Commission, Nvidia said in a statement. We are particularly pleased to see scrutiny being placed on Intel's behavior toward GPUs, which have become an increasingly important part of the PC industry.

GPUs are graphics processing units, and are often used in mobile phones, personal computers and game consoles.

ThinkEquity analyst Vijay Rakesh said the FTC suit against Intel was a distraction for the company but would not derail its focus.

I don't think it will take away from their focus on products. It's just a distraction for the top execs ... I don't think it necessarily changes the landscape much, he said.

It's more a headline positive for Nvidia, Rakesh said. Nvdia has been clamoring that Intel has a lot of anti-competitive practices, just like AMD has ... so it gives Nvidia a little bit of validation, that FTC is acknowledging that too.

Last month, New York Attorney General Andrew Cuomo filed suit against Intel, accusing the company of threatening computer makers and paying billions of dollars in kickbacks to maintain market supremacy.

Regulators in Asia and Europe have taken action against Intel because of controversial pricing incentives.

In Brussels, the European Commission fined Intel $1.2 billion in May 2009 and ordered it to change certain business practices.

In June 2008, South Korea fined Intel some $26 million, finding it offered rebates to PC makers in return for not buying microprocessors made by AMD.

Japan's trade commission concluded in 2005 that Intel had violated the country's anti-monopoly act.

In 1999, the FTC and Intel settled charges that the chip maker used its market power to defend its dominance of the microprocessor market.

Intel's general counsel, Doug Melamed, said the latest FTC case should also have been settled.

Settlement talks had progressed very far but stalled when the FTC insisted on unprecedented remedies -- including the restrictions on lawful price competition and enforcement of intellectual property rights set forth in the complaint -- that would make it impossible for Intel to conduct business, Melamed said in a statement.

Shares of Intel were down 1.77 percent at $19.45 in midday trading on the Nasdaq, while Nvidia shares were up 7.7 percent at $16.85. AMD shares were up 5.78 percent at $9.33 on the NYSE.

(Reporting by Diane Bartz, additional reporting by Gabriel Madway; Editing by Ted Kerr, Tiffany Wu and Matthew Lewis)

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