(Recasts, adds details, analyst comment and byline, updates share price)
By Poornima Gupta
DETROIT, May 24 (Reuters) -Corp. shares rose more than 7 percent and its bond price got a slight lift on Wednesday after Merrill Lynch raised its rating on the automaker on signs that its cost-cutting program was moving faster than expected.
Merrill Lynch analyst John Murphy raised his rating on the stock to "buy" from "neutral" and also raised his estimate of GM's 2007 earnings per share to $4.10 from $1.90. He set a target price of $37 for the stock.
Murphy said there appeared to be significant interest in GM's buyout programs for its hourly workers represented by the United Auto Workers union, indicating progress in cutting GM's high labor costs.
"Based on comments by the UAW... our discussions with industry sources, and the assumption the take rate will accelerate into the June 23 deadline, we estimate that there will be about 30,000 buyouts," Murphy said.
"This would represent a significant acceleration in GM's current restructuring plan," he said.
GM share were up 7.52 percent, at $26.33 on the New York Stock Exchange. GM's 8.375 percent bond due 2033 rose slightly to 74 cents on the dollar, up from 73.625 cents on the dollar, according to MarketAxess.
GM shares have gained over 30 percent since the start of the year on a growing belief that its restructuring efforts were likely to head off a deeper financial crisis.
Some of the rally, including Wednesday's rise, was also attributed to the covering of short positions by traders who had been looking to profit on a continued slide in the company's share price.
The short position in GM as a percentage of its float was about 15 percent as of April, according to NYSE data.
"(That) is absolutely huge," Burnham Securities analyst Dave Healy said. "I don't think I remember a big company with that huge a ratio so I guess shorts are panicked again today."
When investors speculate the price of a stock will fall, they borrow shares to sell, betting they can buy them back at a cheaper price and pocket the difference.
The company is a comprehensive restructuring, which includes shuttering a dozen plants and laying off 30,000 workers, to return its auto operations to profit.
Separately, a hearing in the bankruptcy case of auto parts makerCorp. continued Wednesday morning, a day after GM asked the judge to postpone the proceedings to give the companies more time to reach a deal with their unions.
, which was spun off from GM, had requested permission from U.S. Bankruptcy Court in the Southern District of New York to cancel labor contracts with its unions, a move likely to lead to a huge strike that would cripple the world's largest automaker.