UPDATE 2-Shorts cut yearly loss on GameStop as stock tumbles - S3 Partners

(Updates with Monday performance for short sellers)

NEW YORK, Feb 1 (Reuters) - Investors who have been short shares of GameStop Corp cut their year-to-date losses on Monday with a mark-to-market gain of $2.71 billion as shares in the video game retailer plunged.

GameStop shares tumbled 30.8% to $225 on the session, reducing the mark-to-market loss for short sellers on the year to $12.6 billion, down from the $13.38 billion in early trading on Monday.

The number of GameStop shares that were shorted fell by over half in a week as short sellers covered their bets, analytics firm S3 Partners said on Monday, although the video game retailer remained a highly shorted stock.

GameStop had 27.13 million shares shorted, down 35 million over the prior week, according to Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.

Still, GameStop short interest stood at $8.82 billion as of Friday, making it the sixth-biggest short by value, according to S3.

GameStop shares soared 400% last week alone as the stock became a prime focus of a battle between small traders and big institutions betting against the stock.

“Fundamental and momentum shorts have incurred very large mark-to-market losses and they have been squeezed out of their positions,” Dusaniwsky said. “We saw over the last couple of days some serious short covering in the name.” (Reporting by Chuck Mikolajczak and Lewis Krauskopf, Editing by Franklin Paul, Steve Orlofsky and Lincoln Feast.)