CIT shares jump as lender struggles to survive

— -- The U.S. financial system could be about to get one of its first big gut checks since the failure of Lehman Bros., as stock and bond investors await the fate of struggling lender CIT.

CIT's shares almost doubled Friday on reports the commercial lender held talks with several large banks about securing emergency financing in hopes of avoiding a bankruptcy filing.

CIT is in talks with JPMorgan Chase, Goldman Sachs and Morgan Stanley about receiving short-term financing that may help it avoid filing for bankruptcy protection, a person familiar with the talks told the Associated Press. The person spoke on condition of anonymity because the talks are confidential.

Another option under discussion is for the banks to give CIT financing under a bankruptcy proceeding, according to the source. That would allow the company to restructure under court protection and would ease fears about restricting access to credit for thousands of small retailers, manufacturers and other businesses.

While CIT is not a massive institution of the size of Citigroup or Bank of America, it's a top player in providing loans to small businesses. Some of these companies may have difficulty securing loans elsewhere.

"CIT will be a test of the capital markets," says Bill Larkin of Cabot Money Management. Will CIT's problems "have a noticeable impact or just fade away?"

The broad market generally took the challenges facing CIT in stride Thursday. Stocks rose nearly 1%, approached their 2009 high based on the Wilshire 5000, and posted their first four-day winning streak since June. And even the Russell 2000 index, which tracks smaller companies, including some that presumably are CIT customers, gained 1.2%.