UPDATE 1-GM debt protection costs surge to record high

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NEW YORK, July 2 (Reuters) - The cost to insure the debt of General Motors Corp (GM.N) jumped to a record high on Wednesday after a Merrill Lynch analyst said the automaker will need to raise as much as $15 billion in cash and bankruptcy is "not impossible."

The cost to insure GM's debt for five years with credit default swaps surged to 37 percent upfront, or $3.7 million to insure $10 million in debt, from 33 percent at Tuesday's close, plus annual premiums of 500 basis points, according to Phoenix Partners Group.

GM's debt protection costs have surged on renewed liquidity concerns as the automaker struggles to turn around its business as sales of new vehicles dive.

Although other analysts have suggested GM needs to raise funds to ride out the downturn in the U.S. auto market through 2009, Merrill's estimate of GM's financing needs was the highest yet. It also carried the starkest warning of the bankruptcy risk for the largest U.S. automaker.

GM declined to comment directly on the Merrill Lynch report, but believes it has sufficient liquidity for 2008 and could take more steps to cut costs if sales conditions worsen. (Reporting by Karen Brettell; Editing by Leslie Adler)