UPDATE 2-Citi removes Harley-Davidson from top sell list

(Updates throughout, adds dateline)

DETROIT, March 14 (Reuters) - Citigroup on Friday said it was removing U.S. motorcycle maker Harley-Davidson Inc (HOG.N) as a top pick to sell, saying it saw evidence that sales trends had "stabilized somewhat" and citing a five-year low for the stock as a multiple to forecast earnings.

In January, Citigroup had listed selling shares of Harley-Davidson as one of its "top picks" for 2008."

At the time, Citigroup analyst Gregory Badishkanian said shares of Harley-Davidson could weaken as consumers opted to save rather than spend and because of new motorcycles he said were not as "innovative" as they had been a year earlier.

But on Friday, Badishkanian removed a short position in Harley-Davidson from that "top picks" list, saying that shares "may not have that much more downside."

"We believe that (first quarter) trends have stabilized somewhat," he said in a note for clients.

Even so, Badishkanian said uncertainties remained for Milwaukee-based Harley-Davidson.

"The risk is that retail trends may continue to weaken at Harley-Davidson causing inventories to build. Harley-Davidson may then lower its production numbers."

If that happens, the company may fall short of its 2008 forecast of modest revenue growth and 4 percent to 7 percent earnings-per-share growth, Badishkanian added.

On the positive side, Badishkanian said he expected continued strong international retail sales, similar to the 17.4 percent growth Harley-Davidson posted in the fourth quarter. The weakening U.S. dollar should also continue to benefit the company's international business, he said.

Badishkanian has a "sell" rating and price target of $34 on the stock.

Harley-Davidson's shares and a valuation of its price relative to forecast earnings are both trading near five-year lows, Badishkanian said.

Shares of the company closed down $1.39, or 3.8 percent, at $35.41 on Friday on the New York Stock Exchange. The stock has lost 24 percent since the start of the year. (Reporting by Tenzin Pema in Bangalore, Kevin Krolicki in Detroit; Editing by Jarshad Kakkrakandy, Gary Hill)