UPDATE 1-Xceed Mortgage shares rally on C$300 mln funding

(Adds background)

TORONTO, Oct 19 (Reuters) - Xceed Mortgage (XMC.TO) shares jumped as much as 25 percent to their highest level since mid-August on Friday as the small subprime mortgage lender arranged a new C$300 million ($311 million) mortgage securitization loan.

Xceed said late on Thursday its bank-sponsored facility will be provided through a trust that will issue commercial paper that is rated on an international rating agency.

That news boosted the company's shares as much as 80 Canadian cents to C$4.00 on the Toronto Stock Exchange, making them one of the top percentage gainers shortly after the market opened. The stock later retreated to C$3.68, for a gain of 48 Canadian cents or 15 percent.

Last month Xceed suspended its quarterly dividend and warned that its profit and cash flow would be hit by the turmoil in Canada's credit market.

It did not predict how long the uncertainty in capital markets would last, but said it believed the new funding would be enough to get it through the turbulent period.

"We believe that this facility, when combined with our existing warehouse facility, will be sufficient to meet Xceed's funding requirements until market liquidity is restored," Ivan Wahl, the firm's chief executive, said in a statement.

The U.S. subprime mortgage crisis picked up steam in August and spilled into Canada, where the asset-backed commercial paper market was eventually viewed as unfavorable.

The credit issue also rattled equity markets for much of August given worldwide concerns about credit markets.

Coventree Inc (COF.TO), another small Toronto-based structured finance firm whose conduits ran into trouble last month when buyers for its ABCP disappeared, owns about 10 percent of Xceed.

($1=$0.97 Canadian)