* Sino-Forest shares rise more than 20 pct on TSX
* Moody's downgrades Sino-Forest, warns of further cuts
TORONTO, July 19 (Reuters) - Shares of embattled Chinese forestry company Sino-Forest TRE.TO rose more than 20 percent on Tuesday, as speculative investors jumped back into the stock after a sell-off over the last few days.
"This is now in the hands of speculators," said Barry Schwartz, who is a portfolio manager at Baskin Financial Services. "I would imagine there is another fund, or speculator accumulating a position."
Shares of the Toronto-listed company have plunged more than 75 percent since the beginning of June, following accusations of fraud leveled by influential short-seller Carson Block and his firm Muddy Waters.
But the stock won a short reprieve earlier this month when Boston-based institutional fund manager Wellington Management Co decided to raise its stake in the company.
"You have such a low-priced stock and the possibility of huge returns," said Schwartz. "The market doesn't care where a stock used to be, or what you paid for it. It only cares about the here and now."
Sino-Forest has lost roughly C$3.5 billion in market capitalization, since the Muddy Waters report went public in early June. Sino-Forest has denied any wrongdoing and it has asked a team of independent directors to look into the charges leveled against the company.
Earlier on Tuesday, credit rating agency Moody's cut its rating on the company and warned that it continues to keep the company under review for a further possible downgrade.
Moody's lowered its rating on Sino-Forest's senior unsecured debt to B1 from Ba2.
"The rating action reflects Moody's expectation that Sino-Forest's operations have been adversely impacted by the current investigations conducted by its independent commission," said Moody's analyst Ken Chan in a research note.
Moody's noted that the current turmoil limits the company's ability to access external funding from banks and capital markets.
"While Sino-Forest has taken measures to slow its capital expenditure to conserve cash, Moody's expects balance sheet liquidity to decline from its Q1 2011 level," said Chan.
"The longer it takes for the investigation to complete, the greater will be the pressure on Sino-Forest's liquidity position," he added.
Last week, Fitch withdrew its ratings on Sino-Forest, arguing that it was unable to obtain sufficient information to maintain them. [ID:nWLB7862]
Shares of the company closed 21.3 percent higher at C$4.28 Tuesday on the Toronto Stock Exchange. (Reporting by Euan Rocha)