TOKYO - Investment bank Nomura Holdings and insurer T&D Holdings are among the firms in the second round of bidding for Citigroup's asset management arm in Japan in a deal likely to exceed $1 billion, five sources familiar with the matter said.

Citigroup put Nikko Asset Management, one of Japan's largest fund managers, up for sale as part of the U.S. bank's efforts to raise cash after suffering heavy losses in the wake of the subprime loan crisis.

Last month Citigroup agreed to sell Japanese brokerage Nikko Cordial and key investment banking assets to Sumitomo Mitsui Financial Group, the country's third-largest bank, for about $5.9 billion.

Bidders for Nikko Asset include Nomura Asset Management, a unit of top Japan broker Nomura Holdings, T&D Holdings and Sumitomo Trust and Banking, said the sources, who were not authorised to speak publicly about the deal.

SMFG and Mizuho Financial Group were also among the bidders left, the Nikkei business daily reported.

Citigroup is expected to narrow the list of potential buyers to around two and conduct the final bidding as early as this month, the sources said.

Citigroup spent about 1.5 trillion yen to acquire the Nikko Cordial franchise in a transaction completed early last year, aiming to expand in the world's second-largest economy.

That deal gave it control of Nikko Asset, which had 8.8 trillion yen of assets under management as of March 2009, according to its website.

Separately, Citigroup also plans to sell Japanese telemarketer Bellsystem24 Inc in a deal that could be worth around $1.5 billion, sources have told Reuters.

Shares of Nomura fell 7.1 percent by midday, while T&D Holdings dropped 4.8 percent, SMFG lost 1.5 percent and Mizuho fell 4.2 percent. The benchmark Nikkei average .N225 shed nearly 2 percent. ($1=98.28 Yen)

(Reporting by Taro Fuse and Taiga Uranaka; Editing by Chris Gallagher)