Citigroup shares jump, more than double this week

NEW YORK (Reuters) - Citigroup shares soared on Friday, and more than doubled this week, as investors expressed relief that the second-largest U.S. bank by assets won a government bailout, and separately might not have to suffer big losses from helping to fund a giant leveraged bailout.

Shares of the bank closed up $1.24, or 17.6 percent, at $8.29, after last week reaching their lowest level in 18 years on fears about its exposure due to bad bets on toxic assets. The shares nevertheless remain 12.9 percent below where they closed two weeks ago.

Late on Sunday the U.S. government announced a $20 billion capital injection into Citigroup, and agreed to shoulder most losses on a $306 billion portfolio of potentially troubled assets, in exchange for preferred shares and warrants. The fresh capital came after a $25 billion injection last month.

"The government action did not result in a severe dilution of shareholders equity and provided some relief about the toxic assets," said Marshall Front, chairman of Front Barnett Associates in Chicago, who said his firm bought Citigroup shares last Friday.

"The stock price was excessively depressed, there has been an enormous amount of very negative market action driven to some degree by short sellers, and our view was that the psychology might change that weekend," he added. "The $300 billion-plus guarantee was a lifesaver."

Sunday's bailout reassured investors that the government would not let another big bank fail. Shares of rivals JPMorgan Chase & Co (JPM.N) and Bank of America Corp (BAC.N), which had not been as badly bruised as Citigroup shares, rose a respective 39.3 percent and 41.7 percent this week.

Citigroup also got a boost Wednesday when accountants for a proposed leveraged buyout of BCE Inc (BCE.TO) (BCE.N) concluded the Canadian phone company would become insolvent because of the debt it would be taking on.

If the buyout fell apart, Citigroup would be relieved of having to provide more than $11 billion of loans, much of which it would likely be forced to keep on its balance sheet because there are no buyers.

Citigroup shares remain down 71.8 percent this year, hammered by the worst financial crisis in decades. The bank has lost $20.3 billion in the last year, and many analysts expect further losses because it owns many mortgage and other assets now worth far less than their original value.

(Reporting by Juan Lagorio and Jonathan Stempel; Editing by Tim Dobbyn)