NEW YORK (Bloomberg) — Citigroup Inc. and Bank of America Corp., two of the three biggest US banks, climbed in New York trading after regulators said they may give lenders more capital to revive the banking system.

Citigroup rose 19 cents, or 9.7 percent, to $2.14 in New York Stock Exchange composite trading. The New York- based bank slumped 44 percent last week on concern it would be taken over by the government, wiping out shareholders. Charlotte, North Carolina-based Bank of America advanced 12 cents, or 3.2 percent, to $3.91, after falling 32 percent last week.

The US Treasury and other regulators said their "strong presumption" was that major banks would remain in private hands. They pledged to inject more funds if needed and will begin examinations this week to determine if companies have enough capital. Banks that need more money after the so-called stress tests that can't raise it from private investors will be able to tap additional taxpayer funds, the regulators said.

"It's good news that the bank likely won't be 100 percent nationalised," said John Haynes, senior US equity strategist at Rensburg Sheppards Plc in London. "It's a relief even if only 20 percent remains out of government hands."

Citigroup, the nation's third-largest bank, and Bank of America, No. 1 by assets, have each received $45 billion in federal bailout money.

Citigroup is in discussions with US officials about an increase in the government's ownership, the Wall Street Journal reported earlier yesterday, citing people familiar with the situation. The government may end up owning as much as 40 percent of Citigroup's common stock, while the bank's executives would prefer the stake to be closer to 25 percent, the Journal said. Citigroup spokesman Jon Diat declined to comment.

Citigroup proposed to its regulators that the government convert a large portion of its preferred shares into common stock in a transaction that wouldn¿t cost taxpayers more money, the Wall Street Journal reported.

"What's been proposed here is helpful today, but not particularly helpful going forward," said Gary Townsend, a former bank analyst who is president of Hill-Townsend Capital LLC in Chevy Chase, Maryland. "There's not a lot of appetite to go in the direction, at least immediately, of forcing a cram-down of preferreds to the common level anywhere at any bank."

Banks may have to be nationalised for "a short time" to help lenders such as Citigroup and Bank of America survive the worst economic slump in 75 years, Senate Banking Committee Chairman Christopher Dodd said last Friday.