By Aarthi Sivaraman

NEW YORK, Dec 17 (Reuters) - Jeweler Finlay Enterprises warned that the U.S. recession had hurt its liquidity position and that it might have to curtail its operations or pursue other options if its situation did not improve.

The company, which has its own shops and also operates counters in department store chains like Macy's Inc , cautioned that such steps would not necessarily help it meet financial obligations as they come due.

"Negative economic conditions may result in financial difficulties for our vendors, the department stores in which we operate and the financial institutions that are counterparties to our credit facilities, which could negatively affect us," Finlay said in a regulatory filing late on Tuesday.

The company said the financial crisis that erupted in September, mounting unemployment and the credit crunch had hurt its liquidity position and operating performance.

"Our sales are significantly below our original projections," the company said in its filing with the U.S. Securities and Exchange Commission.

Finlay, which also operates the Bailey Banks & Biddle and Carlyle jewelry chains, said its loss widened to $20.8 million, or $2.23 a share, in the third quarter ended Nov. 1 from $7.5 million, or 82 cents a share, a year earlier.

Jewelry retailers, including Zale Corp , Signet Jewelers and even upscale Tiffany & Co have fallen victim as consumers cut back on spending.

Investors are worried about how retailers will fare in this year's holiday shopping season, which could be the worst since the early 1990s.

During the third quarter, Finlay's senior secured lenders decreased the borrowing availability under a revolving credit agreement after a periodic inventory appraisal, the New York-based company said.

The lenders are performing another review, which could further affect borrowing capacity, according to Finlay.

The company already has a significant amount of debt, including $200 million in senior notes and $353 million under the revolving credit facility on Nov. 1.

Adding to Finlay's worries, Macy's is not renewing license agreements expiring on Jan. 31 at 93 stores. Finlay derives 52 percent of its total sales from the counters it operates at that chain.

Finlay will also wind down at 47 Lord & Taylor stores that accounted for sales of about $44 million in its last fiscal year.

The jeweler moved its stock listing to the OTC Bulletin Board from Nasdaq earlier this year after it failed to maintain a required minimum market value.