Investors bought a rumor that Qwest Communications ( Q) was nearing new terms on a key loan, sending shares of the troubled carrier up 8.7% to $3.01 at the close.

Qwest was said to be nearing a deal with its bankers to renegotiate the terms of a $3.4 billion loan agreement. Doing so would improve the odds for it not having to join the parade of telecommunications firms marching into Chapter 11.

Officials from Qwest wouldn't comment on the market speculation except to say that talks are continuing with the group of 28 lenders, led by Bank of America ( BAC). A spokeswoman for B of A, which arranged the loan deal in May 2001, was unavailable for comment.

Qwest was the second most actively traded stock on the New York Stock Exchange.

Qwest is trying to persuade the banks to relax certain loan provisions and extend the time it has to pay off the debt. The loan is scheduled to come due next year, and Qwest is trying to find ways to reduce the amount of interest it must pay on its $26 billion in debt.

A deal with the banks, coupled with Qwest's recent decision to sell its yellow pages directory business for $7 billion, should provide the phone giant with some short-term liquidity, industry analysts say. Qwest announced the deal to sell its QuestDex directory to a group of financiers on Aug. 20.

Rick Black, a telecom analyst with Blaylock & Partners, says he has no reason to believe a deal with the banks is imminent. But he does expect one to be completed sometime in the next few weeks.

In a corporate filing earlier this month, Qwest said any deal with the banks to relax or eliminate any of the loan covenants will require the approval of all the lenders. Back when the loan was made, the banks and investment firms participating in the financing deal included Citigroup ( C), Commerzbank, J.P. Morgan Chase ( JPM), Bank of New York ( BK), Bear Stearns ( BSC) and Credit Suisse First Boston, according to Loan Pricing Corp., a division of Reuters.

The main provision Qwest is seeking to alter is a covenant that requires it to maintain a specified debt-to-earnings ratio. Without the modification, many industry observers say, Qwest will default on its bank debt.

Of course, a deal with the banks won't make Qwest's other problems go away. It recently posted a $1.1 billion second-quarter loss and is being investigated by the Securities and Exchange Commission over alleged accounting irregularities.