NEW YORK ( TheStreet) -- Synovus Financial ( SNV) and Annaly Capital Management ( NLY) both saw a sizeable uptick in short interest on the New York Stock Exchange at the end of 2010, while Citigroup ( C) and Bank of America ( BAC) both saw moderate drops in bets against those stocks.

Short interest in Synovus rose more than 8% at the end of December, to over 101 million shares, from nearly 94 million during the first half of the month. The Columbus, Georgia-based Synovus saw its stock rise some 30% in December as long-anticipated merger and acquisition activity in the U.S. banking sector showed signs of heating up.

Short sellers borrow a company's shares in the hope they will drop in price. They can then buy them at the lower price to return the shares to the lender, while pocketing the difference. The New York Stock Exchange reports its 100 most-shorted tickers twice a month with several days lag time.

Two big deals announced at the end of December were Bank of Montreal ( BMO)'s agreement to buy Marshall & Ilsley Corp ( MI) for $4.1 billion on December 17, and Hancock Holding Co ( HBHC)'s plan to acquire Whitney Holding Corp ( WTNY) for $1.5 billion on December 22. Both deals came at big premiums to where the target companies' shares were trading.

Annaly -- a buyer of mortgage-backed securities structured as a real estate investment trust -- has seen its shares roughly flat over the past year. However, its dividend yield of more than 14% has been a big draw for investors.

Bank of America and Citigroup are regularly among the most heavily-shorted stocks on the New York Stock Exchange, consistent with their status as among the most heavily-traded stocks on the long side.

Shares of both banks finished 2010 on an upward trend, and have continued strongly in the new year. Citigroup shares are up more than 5% in the past month, which Bank of America shares are up more than 16% during the same time period. Citigroup short interest fell to 355 million shares at the end of December from 357 million during the first half of the month. Short interest on Bank of America, meanwhile, dropped to 112 million shares from 113 million during the previous period.

Another financial stock that saw a notable change in short interest activity was SLM Corp. ( SLM), the student lender better known as Sallie Mae. Short interest on Sallie Mae fell to 14 million shares in the second half of December from 31 million at the start of the month.

Sallie Mae was highlighted in a recent report by Sandler O'Neill as a potential takeover target, as were Discover Financial Services ( DFS), CIT Group ( CIT) and CapitalSource ( CSE). Sallie Mae was also highlighted on Friday as a "top pick" in a report Friday by FBR Capital Markets, and its shares are up nearly 15% in the last month.

-- Written by Dan Freed in New York.
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