UPDATE 1-Fox-Pitt cuts CIT Group to "in line"

June 26 (Reuters) - Fox-Pitt downgraded CIT Group Inc CIT.N to "in line" from "outperform" and said the bank holding company's application for temporary liquidity guarantee program (TLGP) was not likely to be approved.

"While we initially believed that CIT's application to participate in TLGP would be accepted, we've now lost faith that approval will be forthcoming," analyst Bill Carcache wrote in a note to clients.

The analyst believes that CIT owns a strong group of middle-market commercial lending businesses with significant long-term value, but said this means little given the company's inability to secure access to stable funding.

Carcache also said the probability of an acquisition will be much higher after June 30, when potential buyers may feel they have greater leverage given the diminished likelihood that CIT's application for TLGP participation will be approved.

The analyst lowered his price target on CIT's stock by $1 to $7 and cut second-quarter and fiscal 2009 earnings estimates, citing removal of a tax benefit that is unlikely to be realized in 2009.

CIT, which lends to Main Street and small and medium-sized businesses, converted to a bank holding company in the fourth quarter to qualify for U.S. government funds, but the Federal Deposit Insurance Corp has yet to approve its application.

Shares of the New York-based company were trading marginally lower at $2.46 Friday morning on the New York Stock Exchange. They traded as high as $12.19 during last September. (Reporting by Abhinav Sharma in Bangalore; Editing by Anil D'Silva)