CIT Rallies Ahead of Debt Deadline

Updated to include Reuters report, additional context, closing price.

NEW YORK (TheStreet) -- Shares of CIT Group (CIT Quote) soared Tuesday, even as reports conflicted over the future of the troubled lender.

The initial spike higher in the stock appeared to be triggered by a report in the New York Post of a possible merger with IndyMac Federal Bank.

The story cited unnamed sources and was far from definitive in its tone, noting the merger idea was "one of several options being bandied about to help fix CIT." Around midday, Reuters disputed the report, citing unnamed sources, but stating CIT was in talks for a credit line of up to $10 billion. The stock extended its gains following this news, finishing the session up more than 31% at $2.20. It was the first time the shares closed above $2 since July 1. Volume of more than 358 million was more than three times the issue's three-month daily average of 91.3 million.

While the news of the loan talks could conceivably have been the catalyst for the further move upward in the shares, it was not exactly news. Bond research firm CreditSights wrote something similar Sunday, in a report picked up the following day by Bloomberg, but the shares barely budged in Monday's trade.

CIT has been reeling since July when it became clear the company was effectively shut out of the capital markets and would not be able to convince regulators to guarantee its debt, as the federal government had done for large banks like Bank of America (BAC Quote) and Wells Fargo (WFC Quote), as well as for giant lender General Electric (GE Quote). The company had already received $2.3 billion in TARP funds in December 2008.