CIT Group Inc, shares surged on Tuesday following a newspaper report that hedge fund Paulson & Co wants to combine the cash-strapped lender with a Paulson-affiliated bank once known as IndyMac. But a person familiar with the matter denied the report.

The New York Post, citing unnamed sources, said a number of CIT creditors, including Paulson, were considering several scenarios, including merging the struggling finance company into IndyMac, now called OneWest Bank.

One source familiar with the situation dismissed the talk: "There is absolutely no relations between IndyMac and CIT. Linking the two companies is just wrong." Paulson declined to comment on the matter. CIT did not immediately return a call seeking comment.

Paulson, led by billionaire investor John Paulson, was part of a consortium that purchased failed mortgage lender IndyMac from the Federal Deposit Insurance Corp earlier this year.

• Read the full Reuters story.