Continental shares could be pressured

CHICAGO (Reuters) - Continental Airlines CAL.N typically wins praise from analysts for its relative stability in the embattled airline industry. But the No. 4 U.S. carrier's exposure to flagging international travel demand could take the shine off its stock in the short term.

Continental posted a second-quarter loss last week on a slump in business travel, but the airline said it planned to cut 1,700 jobs companywide.

Earlier this month, the airline won limited antitrust immunity to join UAL Corp's UAUA.O United Airlines in the global Star Alliance.

Data from the New York Stock Exchange show that as of July 1, 16.6 percent of Continental's outstanding shares were shorted. A short position occurs when an investor borrows shares and sells them, expecting the price to fall.

Continental stock rose 8 percent to $10.93 on the NYSE late Tuesday afternoon.

SELL FOR NOW

Morningstar airline analyst Basili Alukos said that while he expects Continental to gain in the long term, he believes the company's extensive international route could work against it while business demand remains depressed.

He declined to name a specific downside price target for Continental.

"As the international markets continue to weaken ... I think that'll still continue to hurt them," Alukos said.

GAINS COMING

Morgan Stanley Research analyst William Greene, however, said in a note on Tuesday that Continental is one of three airlines poised for gains in the next 60 days -- the others being Delta Air Lines (DAL.N) and AMR Corp AMR.N, parent of American Airlines.

"Now that the overhang of possible bad news around earnings is behind us, we see the most leveraged airlines as best positioned to outperform in the near term," Greene said.

He said airline stocks are currently under pressure due to concerns about their cash balances but that "revenue trends are in the process of bottoming."

(Reporting by Kyle Peterson; Editing by Richard Chang)