UPDATE 1-NYSE short interest hits record high in January

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By Emily Chasan

NEW YORK, Jan 22 (Reuters) - Short interest jumped 8.7 percent on the New York Stock Exchange in mid-January, rising to an all-time high, the exchange said on Tuesday, as short sellers sought to take advantage of a global sell-off in stocks.

As of Jan. 15, short interest was at a record 13.85 billion shares, up from 12.74 billion shares as of Dec. 31.

The 8.7 percent increase from late December to mid-January was the largest increase in short selling in recorded history, according to Dylan Wetherill, president of short interest tracking Web site ShortSqueeze.com.

"Short sellers on the NYSE have been dumping huge volumes of shorted shares on to the market and gaining from every tick down in stock prices," Wetherill said. "The profits have been fast and huge for the short sellers."

Short interest as of Jan. 15 was equal to 3.7 percent of the total shares outstanding on the NYSE, the exchange said.

The previous short interest record of 12.95 billion shares was hit on July 13, 2007, just before the stock market tumbled in August.

Investors who sell securities "short" profit from betting stocks will fall. Short-sellers borrow shares and then sell them, waiting for the stock to fall so they can buy the shares back at the lower price, return them to the lender and pocket the difference.

U.S. stocks have dropped below August lows this month, and the benchmark Standard & Poor's 500 index .SPX is on track to record its worst January ever, as investors fear the U.S. will slip into recession and drag other economies around the world down with it.

Short interest has been rising fairly steadily on the New York Stock Exchange since late October as short sellers sought to take advantage of the housing meltdown and resulting credit crisis.

The American Stock Exchange also reported a rise in mid-January short interest on Tuesday to about 1.13 billion shares, just below its November record of 1.14 billion shares. (Reporting by Emily Chasan; Editing by Tim Dobbyn and Carol Bishopric)