NEW YORK (Reuters) - Citigroup said on Thursday it is looking to exchange an additional US$5.5 billion of preferred securities for common stock after the U.S. government's stress test found the bank short about that much capital.

The news relieved investors who had feared the worst about Citigroup's shortfall, and wondered how the bank would fill it.

The bank's shares rose nearly 7 percent in after-hours trade to US$4.07.

Citigroup has suffered more than US$90 billion of writedowns and credit losses since mid-2007, amounting to about three quarters of the bank's equity at the start of the credit crisis.

According to the stress test, under the most adverse scenario that the government considered, Citigroup would suffer losses of about US$105 billion. After accounting for factors ranging from expected revenue to a previously announced preferred exchange, the U.S. found that the bank needed to boost common equity by about US$5.5 billion.

The bank, once the largest in the United States and now third-largest by assets, has sold businesses, shed assets, and issued securities to boost its capital since 2007.

In February, Citigroup announced a roughly US$52.5 billion preferred-for-common stock swap.

Citigroup is giving common shares to investors in exchange for their preferred securities, a move designed to boost the bank's tangible common equity base, a measure of the capital the bank would be able to rely on in difficult times.

The government is giving banks the option to exchange preferred shares held by the Treasury for new preferreds that the United States can convert into common stock at its option.

Citigroup never considered that option, Chief Financial Officer Ned Kelly said on a conference call.

On the same call, Chief Executive Vikram Pandit said the test was a "rigorous and thorough process."

The bank will pay back the US$45 billion of U.S. Troubled Asset Relief Program capital it has received "as quickly as possible," Pandit said, adding that repaying the government should not amount to a license to return to pre-credit crunch business practices.

The bank said it does not plan any additional changes to its exchange offer, reiterating its prior assurances.

Last month, many investors had feared the bank would change the price at which preferreds would be converted into common shares, resulting in less dilution for current shareholders.

U.S. regulators told top banks on Thursday to boost their common equity by a total of US$74.6 billion to build a capital cushion.

The bank reviews, led by the Federal Reserve, showed 10 banks needed additional capital to withstand heavier losses that would likely come if the recession worsened.

Pandit said in a statement that the bank's actions will "give it the financial strength to weather an adverse stress scenario".

Assuming every private investor converts their preferred shares in the newly expanded exchange offer, the U.S. government would own about 34 percent of Citi's outstanding common stock, down from a prior level of about 36 percent.

Existing shareholders would own about 24 percent of the outstanding common shares.