NYSE, Nasdaq short interest down

(Replaces story "UPDATE 1 - NYSE, Nasdaq short interest down" issued on Aug. 26 that was based on incorrect data from the New York Stock Exchange)

NEW YORK, Aug 27 (Reuters) - Short interest dipped on the Nasdaq and the New York Stock Exchange in mid August, hinting that investors see the end of the economic slowdown and the crisis roiling financial stocks.

Short interest fell 5.7 percent on the Nasdaq from late July to mid-August, while it fell 2.8 percent on the Big Board during the same period.

Investors who sell securities "short" profit from betting that 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 a lower price, return them to the lender and pocket the difference.

This is the second two-week period in a row during which short interest has fallen on both exchanges. Prior to these two periods, the NYSE short interest had not fallen since March, while the Nasdaq had been holding steady or rising since April, according to the bi-monthly data released by the exchanges.

Short positions in several banks that had been the object of a preventive measure by the U.S. Securities and Exchange Commission last month fell substantially.

For example, short sellers reduced their positions in Merrill Lynch MER.N by 23 percent, and in Lehman Brothers LEH.N by 14 percent. Short interest in Bank of America (BAC.N) fell by nearly 10 percent.

In July, in an effort to clamp down on market manipulation, the SEC issued an emergency rule requiring short sellers to pre-borrow a security before executing a sale for 19 financial stocks. That rule expired on Aug. 12.

As of Aug. 15, short interest on NYSE fell to about 17.8 billion shares, compared to 18.3 billion shares as of July 31. Short interest as of Aug. 15 was equal to 4.66 percent of the total shares outstanding on the NYSE, the exchange said.

At the Nasdaq, short interest fell to about 10.15 billion shares, compared to 10.76 billion shares as of July 31. The Nasdaq's short ratio, or the average number of days it would take to cover the outstanding short positions, increased to 4.54 days from 4.42 days in late July.

The original story was withdrawn on Wednesday because it was based on incorrect data from the New York Stock Exchange. (Reporting by Phil Wahba)