Citigroup, America’s biggest financial services operation, reported a further $14.2 billion (£7.1 billion) hit from the credit crunch in its second quarter, taking it to an overall loss of $2.5 billion for the period.

However, its shares surged $1.63, or 9.1 per cent, to $19.60 as the loss, which equates to 54 cents a share, came in well below the 67 cents-a-share deficit analysts had forecast.

Adam Compton, an analyst at RCM Investors in San Francisco, said: “The results were ahead of expectations, yes, but probably the bigger reason for optimism is the absence of anything terrible.”

The second-quarter writedowns comprise a $7.2 billion charge at its securities and banking unit, much of it relating to investments in sub-prime mortgages. The bank also set aside $7 billion to cover losses on bad loans.

The second-quarter figures bring the group’s overall loss to $17.4 billion over the past nine months. The group has taken a total hit of nearly $60 billion from the credit crunch over the same period. Citigroup’s results capped a generally encouraging week for US banks, igniting hopes that the worst may be behind them.

On Wednesday, Wells Fargo reported a 22 per cent fall in its second-quarter profits to $1.75 billion but its shares jumped 33 per cent because the results came in ahead of expectations and the bank said it would raise its dividend by 10 per cent.

On Thursday, JPMorgan announced a better than expected 52 per cent decline in its second-quarter profits to $2 billion, pulled down by a $4.6 billion credit-crunch hit. The only large financial services group to disappoint was Merrill Lynch, which on Thursday night shocked investors with a larger than expected loss of $4.6 billion.

Separately, Freddie Mac, the second-largest US mortgage-finance company, registered its stock with the US Securities and Exchange Commission, removing the biggest obstacle to executing a $5.5 billion rights issue to bolster its balance sheet in expectation of tens of billions of dollars of losses from America’s housing crisis.

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