A J.C. Penney Co Inc (JCP.N) spokeswoman denied a market rumor on Tuesday that the department store chain had hired bankruptcy counsel, as shares slid as much as 8.3 percent.
Penney spokeswoman Kristin Kays said there was "no truth to the rumor," origins of which were unclear.
Shares were down 7.4 percent to $7.29 in afternoon trading in heavy selling, including a high number of large block trades.
Some 32.5 percent of Penney shares are held short by investors betting against the company's stock rising, making the issue volatile.
Penney has been struggling to revive sales after a failed experiment in 2012 to go upmarket alienated long-time shoppers and depleted its cash reserves. The company incurred huge losses and spent large amounts of money on store remodels.
Earlier this month, Penney closed a public offering of new shares that raised $785 million in a sale partly meant to reassure suppliers and their financiers that it had enough cash on hand.
Penney said last week that it expected to have $2 billion in liquid assets at the end of the fiscal year and that it expected sales trends to continue improving through the end of the year.
(Reporting by Phil Wahba in New York; Editing by Gerald E. McCormick)