UPDATE 1-Washington Mutual debt protection costs jump

(Updates prices, adds background)

NEW YORK, July 25 (Reuters) - Credit protection costs on Washington Mutual Inc WM.N rose sharply on Friday, a day after an analyst said some creditors reduced their exposure to the largest U.S. savings and loan.

Washington Mutual's credit default swaps have been pricing in rising concerns about the thrift's creditworthiness since Gimme Credit analyst Kathleen Shanley wrote in a report on Thursday that "many creditors have quietly been pulling funds" from the company.

In a response to Shanley's report, Washington Mutual said that, as it had stated months ago, "WaMu funds all of its business through its banking operations and does not rely on commercial paper." For details see [ID:nN24333662].

The cost of protecting Washington Mutual's debt for five years rose to $1.80 million on an upfront basis, plus $500,000 in annual premiums, up from about $1.35 million plus $500,000 annually on Thursday, according to a trader. [ID:nN24333662].

Earlier on Friday the credit default swap cost rose as high as 21.5 percent upfront, the trader said.

Concerns about the company have also jumped since Moody's Investors Service said on Tuesday it may cut the thrift's "Baa3" credit rating to junk status, in part because of declining balances in "certain deposit categories." (Reporting by Karen Brettell; Editing by Tom Hals)