Hedge fund manager John Paulson is considering merging troubled U.S. finance company CIT Group Inc with failed mortgage lender IndyMac Federal Bank, the New York Post said, citing people familiar with the matter.

CIT shares rose 9.6 percent, or 16 cents, to $1.83 in morning trading.

According to the paper, the merger, a plan floated by a number of CIT creditors, including Paulson, is not part of any formal discussions between CIT and IndyMac.

The Post said the plan was one of several being discussed.

Paulson was part of the consortium that purchased IndyMac from the Federal Deposit Insurance Corp earlier this year.

A merger between the two banks would diversify IndyMac's portfolio from mortgages to commercial loans. CIT is one of the largest lenders to small and mid-sized businesses in the United States.

Representatives of CIT and Paulson could not immediately be reached for comment. (Reporting by Biswarup Gooptu in Bangalore, editing by Will Waterman and John Wallace)

Investment Citigroup