UPDATE 4-CIT Group posts loss, says new loans increase

* Q2 loss 24 cents/share vs year-earlier profit 91 cents

* Prepaid $2.5 bln of second-lien debt in second quarter

* New loan volume increases

* Shares rise 4 percent (Adds closing stock price)

By David Henry

NEW YORK, July 26 (Reuters) - CIT Group Inc (CIT.N), the business lender run by Wall Street executive John Thain, posted a smaller-than-expected loss as it boosted the rates it charges for leasing railway cars and aircraft.

Restructuring charges from the company's 2009 bankruptcy pushed the company to a $48 million loss for the quarter, or 24 cents a share, compared with analysts' average forecast of a loss of 32 cents a share, according to Thomson Reuters I/B/E/S.

The bank earned a profit of $181.6 million, or 91 cents a share in the same quarter last year.

The restructuring charges come from CIT buying back debt, a step it is taking along with changing the terms of the company's bond documentation, or indentures, to make the junk-rated company more like the investment-grade issuer it intends to be.

The "initiatives further reduce cost of capital and position CIT for long-term success and profitability," Thain said in a statement.

CIT shares rose $1.54, or nearly 4 percent, to close at 41.19.

Thain, a former Merrill Lynch chief executive, was hired in February 2010 to restructure CIT after its bankruptcy,

The company paid $2.5 billion of second-lien debt in the quarter, ahead of schedule.

CIT also said it has ordered 5,000 new railcars to add to its fleet of more than 100,000. Thain told analysts that lease rates for railcars and aircraft are increasing.

Thain has been working to secure enough low-cost replacement financing to ramp up lending. In the second quarter, the company arranged new financing facilities in Asia, Europe and Latin America. Committed new business volume was $2.1 billion, up from $1.7 billion in the first quarter and $1.1 billion in the second quarter of 2010, the company said.

INTERNET DEPOSITS

Despite the new business, earning assets for the quarter fell $6 billion to $34 billion from the 2010 second quarter as borrowers repaid loans and the company sold assets.

Later this year CIT's bank subsidiary will begin taking deposits over the Internet, Thain said. Building that business is cheaper than buying it from another company, he said.

CIT reportedly considered buying the U.S. Internet banking business of ING Groep (ING.AS) of the Netherlands. Capital One Financial (COF.N) bought it instead.

The company's financial results are being complicated by one-time fees for early debt repayments, gains from asset sales and adjustments for so-called fresh start accounting that reset the value of its assets and liabilities when CIT emerged from bankruptcy.

Under fresh-start accounting, CIT results are pulled down when the company repays its debt, whose value was marked down in bankruptcy. By the same token, when CIT's customers repay loans whose value was also marked down, earnings get a lift.

CIT shares have struggled this year, falling 16 percent though Monday. The stock soared 70 percent in 2010 following the company's exit from bankruptcy in December 2009. The shares have tended to rise and fall with movements in the junk bond market, where CIT debt trades, according to analyst Matthew Schultheis of brokerage Boenning & Scattergood. (Editing by Lisa Von Ahn; editing by Andre Grenon)