China opts not to buy stake in Citigroup: report

NEW YORK/SHANGHAI (Reuters) - State-owned China Development Bank has decided not to buy a $2 billion stake in Citigroup Inc (C.N), the largest U.S. bank, forcing it to turn elsewhere to raise capital, the Wall Street Journal reported on Monday.

The report, citing people familiar with the situation, said senior Chinese government opposition surfaced over the weekend, but that the reason for the decision is unclear.

Citigroup spokesmen Richard Tesvich in Hong Kong and Michael Hanretta in New York both declined to comment. A spokesman for state-owned China Development Bank could not be reached immediately for comment.

Battered by the subprime mortgage crisis, Citigroup is expected to report a fourth-quarter loss on Tuesday, its first since Sanford "Sandy" Weill put the financial conglomerate together in 1998.

Citigroup may also announce job cuts this week as it works to reduce costs amid difficult market conditions. Media reports have put potential cuts at 17,000 to 30,000.

A source said Citigroup may also announce it has secured additional capital of between $8 billion and $14 billion from such areas as the Middle East.

Even without the China deal, Citigroup is likely to raise upward of $10 billion, the Wall Street Journal said, citing a person familiar with the situation.

Saudi Prince Alwaleed bin Talal, Citigroup's largest individual investor, is among those who will inject new cash, according to that report on Friday.

A source at China Development Bank who is familiar with the situation but not directly involved told Reuters earlier Monday that Citigroup and China Development Bank had been in talks toward a possible capital injection from the Beijing-run policy bank.

The discussed structure could have included an equity investment as well as the purchase of debt, the source told Reuters.

Cash-rich government investment vehicles from the Middle East and Asia have been taking multibillion-dollar stakes in ailing western financial firms in recent months.

In November, the Abu Dhabi Investment Authority invested $7.5 billion in Citigroup.

In December, China's new sovereign wealth fund, China Investment Corp Ltd, took a $5 billion stake in Wall Street's Morgan Stanley (MS.N).

(Reporting by Ritsuko Ando in New York, Tony Munroe in Hong Kong and George Chen in Shanghai; Editing by Quentin Bryar/Jeffrey Benkoe)