UPDATE 1-N.Y. to make auction-rate securities announcement

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NEW YORK Aug 7 (Reuters) - New York Attorney General Andrew Cuomo, who has threatened to charge Citigroup with fraudulently marketing auction-rate securities, will make a "major announcement" Thursday on an investigation into the securities, his office said.

The Wall Street Journal has reported that Citigroup Inc (C.N) could reach a preliminary agreement with regulators as soon as Thursday to buy back $5 billion to $8 billion of the debt to settle allegations that it wrongly told customers the securities were safe.

Citigroup, the largest U.S. bank by assets, has been in talks with Cuomo's office, other state securities regulators and the U.S. Securities and Exchange Commission, the newspaper reported on Wednesday.

Auction-rate securities have interest rates that reset periodically. The $330 billion market was once considered safe, but a large part of it remains frozen after a February meltdown in which brokerages abandoned their role as buyers of last resort.

A spokesman for Cuomo's office said the attorney general would have a news conference at 11 a.m. (1500 GMT). He declined further comment.

Last Friday, Cuomo's office threatened to charge Citigroup with fraudulently marketing and selling auction-rate securities and destroying documents that had been subpoenaed.

The office accused Citigroup of wrongly telling customers that auction-rate debt was safe, liquid and the equivalent of cash.

Cuomo left the door open to a settlement, which could establish a precedent for settlements with Citigroup rivals that face civil charges over auction-rate debt.

Citigroup has said it was also responding to subpoenas from Massachusetts and Texas over the debt.

Citigroup was the largest underwriter of auction-rate debt in all but one year this decade, Thomson Financial data shows. (Reporting by Grant McCool; editing by John Wallace)