* U.S. government may end up with 40 pct stake in Citi-WSJ
* Dealers cut positions in gold, Treasuries, U.S. dollar
* MSCI Asia Pacific ex Japan stock index up from 3-mth low (Repeats to wider coding; no changes to text) (Updates prices, adds quote, comments and byline)
By Kevin Plumberg
HONG KONG, Feb 23 (Reuters) - Asian stocks rebounded and the U.S. dollar tumbled on Monday after a report said the U.S. government could end up owning as much as 40 percent of Citigroup Inc, sparking relief among investors who cut their safety trades.
U.S. equity futures rose 1 percent SPc1 and gold declined further below $1,000 an ounce after the Wall Street Journal, citing people familiar with the situation, said Citi (C.N) was in talks that could wind up saddling the government with a big stake in the financial group, though it remained unclear if any fresh cash would be given to the bank. [ID:nHKG310337]
The company’s stock price plunged 44 percent last week.
The market implications a big public stake in a major international bank has for equity dilution, for cross-border capital flows and for risk taking in general were far from clear.
“It is reasonable enough to expect markets to remain volatile and my suspicion is the rise in risk appetite that we are seeing now could peter out in the U.S. session as it will not be taken very positively,” said Stephen Roberts, an economist with Nomura Securities in Sydney.
Still, the three havens that investors mainly bought last week on uncertainty about the fate of U.S. banks -- U.S. Treasuries, gold and the dollar -- dropped, as dealers sold first and worried later about the consequences.
The MSCI index of Asia-Pacific stocks outside Japan .MIAPJ0000PUS rebounded after hitting a 3-month low and was up 1.4 percent on the day.
A gloomy mood remained in Japan though after SFCG 8597.T, a high-interest lender to smaller firms, went bankrupt, as tight credit choked small and medium-sized businesses.
In addition to further details on any potential changes in Citi’s capital structure, investors wanted more clarity on the U.S. government’s plan to fix the banking industry. CNBC on Friday said the White House planned to release this week some details on a plan that was initially panned by global markets, citing unnamed sources at the Treasury Department.
There is a growing view among investors that countless fiscal stimulus packages around the world will inevitably do some to support the global economy but confidence in the banking system must be the foundation of a recovery.
While the Wall Street Journal report produced more questions than answers, dealers wasted no time in cutting their bets on the U.S. dollar and gold.
Sharada Selvanathan, currency strategist with BNP Paribas in Hong Kong, doubted the rising trend in the dollar on the back of safe haven flows was over. “Remember that when a bank gets nationalised, it will be forced to handle business in a more domestically oriented manner; this would mean that the nationalised bank would have to pare back its business offshore. Repatriation flows would prove to be dollar positive,” she said.
Gold in the spot market XAU= fell 1.1 percent to $985.90 an ounce after rising to the highest since March 2008 on Friday, $1,005.40. The precious metal has risen 12 percent so far this year, bolstered by a lingering aversion to risk.
The benchmark yield on the 10-year U.S. Treasury note US10YT=RR ticked up to 2.81 percent from 2.79 percent late on Friday in New York.