NEW YORK — Citigroup's surprisingly low pricing of a stock offer this week provides a clear sign that investors are still nervous about the banking giant's ability to regain its financial health.

On Wednesday, Citigroup Inc. said it would sell 5.4 billion shares of stock at a price of $3.15 per share to help repay $20 billion in government bailout loans. That price was 9 percent below where shares were trading before the announcement.

"The market is not buying the Citi story right now," said Alois Pirker, a research director at financial consultancy Aite Group.

The U.S. government also balked at the deal, stepping away from selling a portion of its nearly 34 percent stake in Citigroup.

Citigroup shares tumbled 24 cents, or 7 percent, to $3.21 yesterday.

Analysts say Citi, which managed the underwriting of the offer itself, didn't have much of a choice but to take the hit of selling at such a low price because of uncertainty surrounding the bank.

Citigroup has been among the hardest hit banks by the credit crisis. It earned $101 million during the third quarter before accounting for preferred stock dividends and the debt exchange that gave the government a stake in the bank. Including those items, Citi lost $3.24 billion.

The bank has to deal with loan losses that continue to pile up. It set aside $8 billion during the third quarter to cover loan losses.

Citi must also find buyers for some of the risky investments that got it into this predicament in the first place — Citi separated its risky assets into a separate division earlier in the year.

On top of that, Citi now has to fight fraud claims by a key investor. Abu Dhabi's main sovereign wealth fund is looking for compensation or to exit a $7.5 billion investment in Citigroup, saying the bank misrepresented its health when striking the deal in late 2007.

With all those questions remaining, trying to sell shares at a higher price could have led to a bigger disaster: not enough investors willing to buy into the $17 billion common stock offering — the largest equity offering in history.

Citi had to get the deal done or else it would be left further behind competitors, analysts say.

Already struggling to keep top talent and draw in new customers, Citi would have been the only big bank stuck under restrictions tied to receiving government bailout money, including caps on employee compensation.

The last remaining national banks that had yet to pay back bailout money, Bank of America Corp. and Wells Fargo & Co., both recently took steps to do just that.

Wells Fargo's and Bank of America's stock offerings to repay the government received a much stronger response than Citigroup's. Pirker said that demonstrates how much less confident traders are toward Citi's recovery.

As for the government's stepping back, the Treasury Department may have miscalculated the perception of Citi's health as it tries to quickly unravel investments it made as part of the $700 billion Troubled Asset Relief Program. Citi received $45 billion in bailout money, $25 billion of which was converted to the ownership stake in the bank.

The government was planning to sell 20 percent of its stock at the same time Citi was selling new shares. At a price of $3.15, the government would have lost $158.7 million on the sale, so it opted not to participate in the deal.