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Short interest rose significantly on the Nasdaq in mid-July but rose only slightly on the New York Stock Exchange, while remaining well below levels seen at the height of the financial crisis, data from the exchanges showed on Friday.

Many of the short interest positions on Nasdaq were centered on the health-care sector, said Eric Newman, portfolio manager at TFS Capital in West Chester Pennsylvania, who cited uncertainty over government efforts to reform the sector as a possible reason for an increase in bearish sentiment.

A lot of this (short interest) is because of the health care sector, said Newman. That is interesting given current events. Maybe people are some what bearish on the health-care sector given the talk of new health-care policy in Washington.

Short interest on the Nasdaq rose 4.1 percent, while on the NYSE it was up 0.4 percent from June 30 to July 15. There were 7.14 billion short positions on the Nasdaq at the end of the period and 15.64 billion on the NYSE.

The Nasdaq's short ratio, or the average number of days it would take to cover the outstanding short positions, decreased to 2.90 days from 2.91 days in late June. Short positions on the NYSE amounted to 4.1 percent of total shares outstanding.

The recent increase in hedge fund assets could be another reason behind the rise in short interest. Hedge fund assets swelled by $100 billion in the April-June period, the first quarterly increase since the second quarter of 2008, according to industry tracking group Hedge Fund Research Inc.

Hedge funds use a range of short-selling strategies, from hedging long positions to straight bets that a stock's price will decline.

In general the wider market has not been conducive to short-sellers. The S&P 500 index is up 45 percent since hitting a 12-year closing low in March, and has so far confounded the bears' predictions of a significant correction. After a slight pull-back, stocks have again rallied since the second week of July, mainly on better-than-expected corporate earnings.

Harry Strunk at Treflie Capital management in New York said short investors have had a rough ride this year.

It's been pretty tough on them obviously with this market move, said Strunk. It's the momentum happening in the market right now, a lot of managers are putting cash to work and the momentum is moving upward.

Increases in short interest can also result from investors using pair-trades where they buy one stock and short another. That does not necessarily equate with an increase in bearish sentiment, said Strunk.

Investors who sell securities short seek to profit from betting that stocks will fall. Short-sellers borrow shares and then sell them, waiting for the stock to fall so they can buy the shares back at a lower price, return them to the lender and pocket the difference.