UPDATE 1-CIT in talks with US; plunges on liquidity worry

* CIT says in talks with gov't for federal support

* Cannot assure FDIC approval

* Stock falls 39.2 percent to record low

By Sweta Singh

NEW YORK, July 10 (Reuters) - CIT Group Inc CIT.N said it is in active talks with the U.S. government to gain access to a key lending program, as the commercial lender's stock fell to a record low on Friday on concerns that it would be excluded.

The shares fell as much as 39.2 percent on reports the Federal Deposit Insurance Corp will reject the New York-based company's effort to join its Temporary Liquidity Guarantee Program because CIT's credit quality is worsening.

The program has allowed dozens of financial services companies, many of which are suffering big losses, to sell "triple-A" rated debt at low cost. Through May 31, about $345.8 billion of debt issued under the program was outstanding, according to the FDIC website.

CIT said it is having an "active dialogue" with the government, but that there is no guarantee the FDIC will approve its application.

The lender to small- and mid-sized businesses became a banking company in December and obtained $2.33 billion of funds from the federal Troubled Asset Relief Program.

But it has lost close to $3.3 billion since the end of 2007, and in a May regulatory filing said it had $10 billion of funding needs to address in the year ending March 31, 2010.

On Wednesday, Fitch Ratings downgraded CIT deeper into "junk" status, a move that affected $35 billion of CIT debt.

The credit rating agency said CIT "remains heavily reliant on wholesale funding amidst challenging market conditions," and said if the company cannot access the FDIC program soon, another downgrade could follow, indicating that "default is a real possibility."

David Chiaverini, an analyst at BMO Capital Markets, said if CIT cannot join the program, it will have to seek funding sources to meet its debt obligations over the next two years.

"Those alternative funding sources will include sharply curtailing their new business originations and asset sales," he said. He rates CIT "market perform."

In afternoon trading, CIT shares were down 42 cents, or 22.6 percent, at $1.44, after earlier falling to $1.13.

Its 5 percent notes maturing in 2015 rose 1.9 cents to 56.4 cents on the dollar, according to MarketAxess. The cost of protecting $10 million of debt against default rose to 37 percent upfront plus $500,000 a year from 34.5 percent upfront, according to Phoenix Partners Group. (Reporting by Sweta Singh; Editing by John Wallace and Richard Chang)