( This story was updated with a comment from research firm Muddy Waters, whose principals are short the stock.)BOSTON ( TheStreet) -- Orient Paper ( ONP) shares surged Friday despite another bearish research note released by Muddy Waters Research, a firm that has a short position in the Chinese paper company's shares. Orient Paper shares were climbing by 57 cents, or 12.8%, to $5.03 after hitting an intraday high of $5.63 earlier Friday. Traders posting on Internet message boards and Twitter attributed the spike in Orient Paper's share price to a short squeeze. More than 1.44 million shares of Orient Paper changed hands by 12:30 p.m. ET Friday, compared to the average daily share volume of 643,000. The rally comes one day after Muddy Waters Research continued the war of words with the Chinese company by posting a research report that once again claims Orient Paper engaged in fraudulent activity. Muddy Waters' research note Thursday cites an article by Chinese publication 21st Century Business Herald, which investigated many of Muddy Waters' claims that lead the firm to conclude Orient Paper is committing fraud.
|More on Orient Paper Video: Orient Paper Factory Tour|
Orient Paper has denied the allegations, claiming that Muddy Waters was incorrect in citing financial statements of He Bei Oriental Paper Co. Ltd, and that the company's operating subsidiary is actually named Hebei Baoding Orient Paper Milling Co., Ltd. Last week, Orient Paper said it has retained law firm Loeb & Loeb, which plans to work with its audit committee to retain a Big Four audit firm to conduct an independent investigation into allegations of fraud by Muddy Waters. Muddy Waters principal Carson Block attributes the rally in Orient Paper shares Friday to a video on the Wall Sreet Media Web site. "Today, the stock may be up as a result of a video tour of ONP shown on a site that frequently features Chinese micro-caps in a positive light," Block writes in an email to TheStreet.com. "We note that there are a number of issues in the way the video is presented and within the video itself, including machinery that is freshly painted and other clear signs of staging." While Orient Paper shares were jumping Friday, the stock has lost more than 40% since Muddy Waters' initial report. -- Written by Robert Holmes in Boston. Follow Robert Holmes on Twitter and become a fan of TheStreet.com on Facebook.