Shares of small-business lender CIT Group Inc
People are speculating that CIT is going to get government assistance, said David Chiaverini, analyst with BMO Capital Markets in New York.
The U.S. Treasury, the Federal Reserve and the Federal Deposit Insurance Corp. are exploring aid options for the lender, a source familiar with the matter said on Monday.
A Treasury spokeswoman on Tuesday said the department was declining further comment on the CIT situation, and the Federal Reserve also would not comment.
A CIT spokesman did not immediately respond to requests for comment on the status of talks, while FDIC officials could not be immediately reached. The Small Business Administration also declined comment.
Regulators are divided on whether and how to aid CIT, a key source of financing for small and medium-sized companies as investors worried whether the lender would be able to meet its obligations to bondholders.
A CIT bankruptcy filing would deal a blow to emerging confidence in the financial sector and could disrupt funding for a key source of job creation in the U.S. economy.
CIT shares climbed as much as 31 percent to a high of $1.77 in morning trading, but later fell back to $1.52, up 12.6 percent.
The upfront cost to insure $10 million of CIT debt for five years fell to $3.8 million from $4.05 million late on Monday, plus annual payments of $500,000, according to data from Phoenix Partners Group.
CIT shares had slumped 11 percent on Monday after the New York-based company said it might not receive approval from the Federal Deposit Insurance Corp to issue government-guaranteed debt.
The lender has struggled to finance its business during the financial crisis. It applied in January to access the debt-guarantee program to improve its liquidity position.
Shares of CIT, which mostly finances small and medium-sized companies, have fallen 70 percent this year.
(Reporting by Elinor Comlay in New York and David Lawder in Washington)