UPDATE 1-Citigroup shrs rise after bank escapes US fetters

* Shares up 4 pct after government sells stake

* Investors cheer removal of government "albatross" (Adds analyst; updates options volume, shares)

By Maria Aspan

NEW YORK, Dec 7 (Reuters) - Shares of Citigroup Inc (C.N) rose 4 percent on Tuesday, a day after the U.S. government sold off its remaining stake in the bailed-out banking giant.

The U.S. Treasury said late Monday that it had sold its 2.4 billion Citigroup shares at $4.35 each, finally unwinding an ownership interest that in April amounted to 27 percent stake in the bank. [ID:nN06234751]

The sale closed a long and difficult chapter for Citigroup, which took $45 billion in three government bailouts during the financial crisis. The bank has returned to profitability this year but struggled to rebuild its reputation under the stigma of being a government ward.

"To finally get that albatross off from around its neck, it's a great thing," said Alan Villalon, a senior banking analyst at Minneapolis-based First American Funds, which owns Citigroup shares.

"Now the concerns that the government is influencing business decisions can be gone," he said.

Citigroup has said the government did not dictate business decisions to the bank and its executives. "But when you've got the government as your largest shareholder, it still creates some doubt in people's minds," Villalon said.

Citigroup Chief Executive Vikram Pandit said on Tuesday that all the elements are in place for sustained profitability at the bank. [ID:nWEA6341]

Citigroup option volume was very heavy -- 3.1 times greater than its recent average daily levels by early afternoon, according to option analytics firm Trade Alert.

Andrew Wilkinson, senior market analyst at Interactive Brokers Group, said traders are now more optimistic about the potential of Citigroup shares.

"The government's stake in the bank was perceived to represent a lid on the share price," he said.

Credit Suisse said the government's share sale could help lift the S&P 500 index on Tuesday as Citigroup moves to a 100 percent float. [ID:nN07279152]

Citigroup shares were up 18 cents at $4.63 in early afternoon trading, leading bank stocks. (Additional reporting by Doris Frankel in Chicago; Editing by John Wallace and Steve Orlofsky)