PIMCO's Gross says LBO trend peaking

NEW YORK (Reuters) - Speculation that a $100 billion leveraged buyout may be in the cards soon is the clearest indication yet that the private equity boom is nearing its peak, bond guru Bill Gross said on Monday.

"Typically when you hear these mega events, it's the beginning of the end," Gross, chief investment officer of PIMCO, as the Pacific Investment Management Co. is known, told the Reuters Investment Outlook 2007 Summit.

Gross said the talk reminded him of the "skyscraper phenomena", where cities build tall towers just to satisfy their vanity.

"Maybe (it's) like the well-known skyscraper phenomena that typifies the beginning of the end in a particular country."

Private equity firms pay for deals with a small amount of their own cash and borrow the rest, causing big losses to bond holders in the process.

The biggest LBO to date is KKR's roughly $33 billion purchase of RJR Nabisco. But the large private equity funds are increasingly going after big targets.

Earlier in December, rumors circled that home improvement retailer Home Depot Inc. (HD.N: Quote, Profile, Research, Stock Buzz) may be targeted by buyout firms. Home Depot's CEO denied the company was pursuing any such deal.

Gross said the risk of a "financial accident" had risen because of the higher levels of leverage in the economy and falling risk spreads across asset classes. The stability witnessed in the economy now may give way to instability, he said.

"There's the possibility of the calm before the storm," he added.