June 19, 2008 / 8:08 PM / 11 years ago

UPDATE 1-NYSE short interest rises 7.4 pct to all-time high

(Updates with background, analyst comment, byline)

By Emily Chasan

NEW YORK, June 19 (Reuters) - Short interest on the New York Stock Exchange jumped 7.4 percent in mid-June, the exchange said on Thursday, rising to a fresh all-time high, and suggesting an increase in bearish sentiment in the stock market.

As of June 13, short interest rose to about 17.65 billion shares, compared with the previous record high of 16.43 billion shares on May 30.

Short interest as of June 13 was equal to 4.6 percent of the total shares outstanding on the NYSE, the exchange said.

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.

“The short interest has reached staggering levels,” said Dylan Wetherill, president of short interest tracking site ShortSqueeze.com. “You can cut the pessimism in the market with a knife.”

The rise in short interest came as investors fretted about the sharp increase in oil prices and the the prospect that banks may have to write off more bad loans. The benchmark Standard & Poor's 500 index .SPX fell 2.9 percent from late May to mid-June.

The 1.22 billion increase in shares shorted was also an all-time record, the exchange said. The share increase in short interest has topped 1 billion two other times this year: from late December to mid January, and from late February to mid March.

“The shorts are confident the market is going to begin a new leg down and they are not only speculating about an impeding market drop, they are helping to drive it down with this mass amount of selling,” Wetherill said. “Every drop in the market means money in their pockets.” (Reporting by Emily Chasan; editing by Carol Bishopric)

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