The US government ratcheted up its effort to save Citigroup, agreeing to a third rescue attempt to cut existing shareholders' stake in the firm by 74 per cent. The stock fell as much as 37 per cent on the New York Stock Exchange.

The Treasury Department said it will convert about $25 billion of preferred shares into common stock provided private holders agree to the same terms, the government said in a statement on Friday. The conversion would give the US a 36 per cent stake in the New York-based firm.

"We're in these dire conditions, and this is a restructuring of a troubled company," CreditSights Inc analyst David Hendler said. "Common shareholders are severely diluted."

Increased government involvement complicates CEO Vikram Pandit's attempt to restore confidence in the company after the stock sank to the lowest in 18 years. The government is supporting Citigroup because of concern its failure might roil weak global markets. The US does not immediately intend to inject additional money after channelling $45 billion to Citigroup last year.

The bank, which last year slashed its quarterly dividend to 1 cent a share, said today the payout will be eliminated. It also took an accounting charge related to the plummeting value of some businesses, swelling its record 2008 loss to $27.7 billion, or 48 per cent larger than reported a month ago.