The Dow and the S&P 500 stock indexes rose on Monday as investors took reports that Washington could convert its holding in Citigroup to a larger stake as a sign that it is ready to forestall further paralysis of the financial system.

But with investors snapping up beaten-down financial shares, money moved out of the technology sector, causing the Nasdaq to drift into negative territory.

Instead of pumping fresh money into Citigroup, the government could convert a big chunk of the $45 billion in preferred shares it bought last year, raising its holding to as much as 40 percent, the Wall Street Journal reported.

What that means is that the government is willing to stand in line with the rest of common shareholders for the survival of this bank, said Art Hogan, market analyst at Jefferies & Co in Boston.

Citigroup shares rose more than 12 percent to $2.19, while Bank of America shares gained more than 13 percent to $4.30, as shares of JPMorgan jumped 7 percent to $21.30. The S&P financial index <.GSPF> added 3.6 percent, while the KBW Bank index <.BKX> rose over 5 percent as it rebounded from lows not seen in 17 years.

The Dow Jones industrial average <.DJI> was up 28.04 points, or 0.38 percent, at 7,393.71. The Standard & Poor's 500 Index <.SPX> was up 1.73 points, or 0.22 percent, at 771.78. The Nasdaq Composite Index <.IXIC> was down 8.31 points, or 0.58 percent, at 1,432.92.

(Editing by James Dalgleish)