(Adds TierOne statement, details, background)

NEW YORK, Feb 18 (Reuters) - Commercial lending and investment company CapitalSource Inc CSE.N said on Monday its board has authorized its CEO to either terminate its deal to buy Nebraska savings bank TierOne Corp (TONE.O: Quote, Profile, Research) or negotiate new terms for the transaction.

CapitalSource said in May it agreed to buy TierOne in a cash-and-stock deal worth about $652 million, or $34.46 per share at the time, to boost its commercial lending, investment and asset management business.

However, TierOne shares closed on Friday at $17.40, indicating that traders doubt the existing deal will close.

On Monday, CapitalSource said that a provision in the merger agreement allows either TierOne or CapitalSource to terminate the deal after Feb. 17.

Earlier on Monday, TierOne said it does not plan to terminate the transaction at the present time, adding that it is committed to completing the deal and is awaiting comments from its federal regulatory agency.

CapitalSource said it will continue to evaluate the deal, which remains subject to approval by the Office of Thrift Supervision.

If the transaction is terminated, it would be the latest takeover deal to fall apart amid a widespread credit crunch.

TierOne Corp. is the holding company of TierOne Bank, a federally chartered savings bank headquartered in Nebraska.

Chevy Chase, Maryland-based CapitalSource is a commercial lending, investment and asset management business focused on the middle market. (Editing by Dan Grebler)