NEW YORK, Jan 25 (Reuters) - Short interest on the Nasdaq rose 7.1 percent in mid-January, the exchange said on Friday, suggesting an increase in bearish sentiment in the stock market.

As of Jan. 15, short interest rose to about 8.69 billion shares, compared with 8.11 billion shares at the end of December.

The Nasdaq's short ratio, or the average number of days it would take to cover the outstanding short positions, increased to 4.45 days from 4.36 days in the previous period.

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.

Short sellers have been building up positions as U.S. stocks dropped this month amid fears the United States will slip into recession, according to Dylan Wetherill, president of short interest data tracker ShortSqueeze.com.

"(Short sellers) have a lot of confidence right now," Wetherill said. "The profits from driving stocks down have been very good to short sellers so far this year."

By comparison, short interest rose 8.7 percent to a record high on the New York Stock Exchange in mid January and also rose on the American Stock Exchange in that period. (Reporting by Emily Chasan; editing by Carol Bishopric/Andre Grenon)

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