The U.S. government may end up holding as much as 40 percent of Citigroup's common stock, the Wall Street Journal reported on its website, citing sources familiar with the plans.

But Citigroup executives hope the talks with U.S. federal officials will result in a stake closer to 25 percent, the Journal reported.

The lender is discussing with U.S. officials a scenario in which a substantial portion of the $45 billion in preferred shares held by the U.S. government, amounting to a 7.8 percent stake in Citigroup, would convert into common stock, the newspaper said.

U.S. stock futures turned positive and Treasuries fell after the report.

A Citigroup spokesman in Hong Kong declined to comment.

Citigroup officials also hope to persuade private investors that have bought preferred shares -- including the Government of Singapore Investment Corp (GIC), Abu Dhabi Investment Authority and Kuwait Investment Authority -- to also convert their preferred shares into common stock, the Journal reported.

In a separate report, the Financial Times said Citigroup is pressing the U.S. government to agree on a new capital injection that would increase the authorities' stake in the bank to about 40 percent, but stop short of an outright nationalization.

The FT said Citi insiders expect a decision on the company's future in the coming weeks, but warned it would have to come earlier if its shares fell again in the next few days.

Citi could also try to raise fresh equity with a public share offering, the FT said. The aim would be to keep the government stake to no more than 40 percent or at least below 50 percent, it said, citing people familiar with the plan.

Citi stock has dropped 71 percent so far in 2009.

(Reporting by Rafael Nam; Additional reporting by Megan Davies in New York; Editing by Ian Geoghegan)