Palm Soars on Rumor and Short Covers

Speculation that Lenovo was interested in sunken phone shop Palm helped push its shares up 20%.
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NEW YORK (

TheStreet

) --

Palm

(PALM)

shares took big ride up Wednesday as takeover rumors and so-called short covering had investors loading up on the recently collapsed stock.

While unconfirmed, the speculation in circulation involved a possible interest in Palm by China PC giant

Lenovo

. The rumor adds Lenovo to a list of companies like

Dell

(DELL) - Get Report

,

Hewlett-Packard

(HPQ) - Get Report

,

Motorola

(MOT)

and

Nokia

(NOK) - Get Report

that have been considered potential buyers of the sputtering smartphone shop.

Palm Pre

Part of the stock move was fueled by shorts, or investors who borrowed shares hoping to repay them at a lower price. The takeover rumor likely triggered a squeeze where investors rushed to buy the stock and then exit their short positions.

Palm came back from the dead last year as new management and new phones looked to have revitalized the company. But so far this year, amid stiff competition from

Apple

(AAPL) - Get Report

,

Research In Motion

(RIMM)

and

Google

(GOOG) - Get Report

, revenue has tumbled, taking the stock down with it.

Palm shares, which had surged more than 21% at one point Wednesday, ended the regular session up 20% at $4.62.

--Written by Scott Moritz in New York.