CIT shares tumble on fears of no federal support

NEW YORK, July 10 (Reuters) - Shares of CIT Group Inc CIT.N slumped as much as 40 percent Friday on fears the commercial lender will not be accepted into a government-supported lending program.

The Federal Deposit Insurance Corp is unwilling to guarantee CIT Group's bond sales because the company's credit quality is worsening, Bloomberg reported, citing people familiar with the regulator's thinking.

That will cause CIT to seek alternative funding sources to meet its debt obligations over the next year to two, said analyst David Chiaverini of BMO Capital Markets.

"I think those alternative funding sources will include sharply curtailing their new business originations and asset sale," he said.

Chiaverini has a "market perform" rating on CIT shares.

Late on Thursday, analysts told Reuters the company may seek a debt exchange or asset sale if it is denied access to the government-supported lending program.

Concerns over CIT's liquidity have increased as its application to gain access for funding under the FDIC's Temporary Liquidity Guarantee Program remains on hold.

The company, which lends to small and medium-sized businesses, has run into problems funding itself as its borrowing costs have increased and debt comes due.

Shares of the New York-based company were down 27 percent at $1.36 in morning trade on the New York Stock Exchange. The stock, which has lost more than three-fourth of its value in the last 12 months, earlier touched a low of $1.13. (Reporting by Sweta Singh; Editing by John Wallace)