TOPWRAP 6-CIT rescue deal; mixed U.S. recovery signs

(For more on the financial crisis, click on [nCRISIS])

* CIT board approves $3 bln deal with bondholders -sources

* U.S. recession easing but not yet ended -survey

* German economy likely contracted in Q2 -Bundesbank

* U.S blue chips jump 104 pts; dollar, yen weaker (Updates market moves, adds more analyst comments)

By John Parry

NEW YORK, July 20 (Reuters) - U.S. lender CIT Group Inc CIT.N secured a $3 billion rescue from bondholders, sources said, which some saw as a good omen for credit markets, although the U.S. economy is still struggling to emerge from recession.

Meanwhile, across the Atlantic, the pace of the most bruising global economic downturn in decades is slowing, Germany's central bank said.

The CIT news and a small rise in the U.S. index of leading economic indicators helped lift U.S. and European shares, while Asian stocks outside Japan hit their highest level since last September when Wall St investment bank Lehman Brothers collapsed. Hopes of a recovery in corporate earnings in the months ahead also helped. [MKTS/GLOB].

The Dow Jones industrial average bolted more than 1 percent higher to close at 8848 points .DJI.

The dollar hit a six-week low against the euro, as investors waded back into riskier assets and higher-yielding currencies following fairly solid U.S. corporate earnings posted so far this quarter. [ID:nN20400267]. The yen also weakened.

The board of CIT, which lends to nearly one million small and mid-sized businesses, approved a $3 billion deal with bondholders, keeping the struggling lender out of bankruptcy, a source close to the matter said. [ID:nN206604]

The costs to insure CIT's debt against the risk of default fell and the price of its notes jumped in brisk trade on Monday. See [ID:nNYG001575] and [ID:nN20121351]

CIT's shares CIT.N nearly doubled in early trade and held most of their gains in the afternoon, up 79 percent to $1.27.

The company was expected to announce later on Monday the agreement to obtain $3 billion of emergency financing, avoiding bankruptcy, a person close to the matter said.

"The stock holders are cheering because (the rescue) is better than a bankruptcy, and the thought is maybe the markets will improve over the next couple of years," said Sean Egan, managing director at Egan-Jones Ratings Co. in Haverford, Pennsylvania.