Shares of Citi rose nearly 9 percent after the announcement of the $2.5 billion loss. The earnings announcement helped lift other financial stocks as Citi joined JPMorgan Chase & Co. and Wells Fargo & Co. in convincing investors that the prognosis for the sector, while gloomy, may not be as dire as the market feared.

Still, it's hard to get too enthusiastic about clearing a low bar. It was Citi's third straight quarterly loss, and neither JPMorgan nor Wells Fargo managed to notch a profit gain compared with last year.

Also, brokerage firm Merrill Lynch & Co. reported a wider-than-expected quarterly loss, and Wachovia Corp. and Washington Mutual Inc. are expected to reveal losses next week. Bank of America Corp. is forecast to report a steep profit decline.

"I don't think anyone's breathing too easily right now," said Prakash Shimpi, who works in the risk-management practice at consulting firm Towers Perrin. Determining the dollar value of certain assets backed by debt is still a tricky process, he said, even a year after the housing crisis began.

Citigroup, the nation's largest banking company by assets, lost the equivalent of 54 cents per share in the April-June period. In the same quarter last year, the bank earned $6.23 billion, or $1.24 per share.

The shortfall was less than the 66-cent-per-share loss that analysts, on average, were expecting, according to Thomson Financial.

Citigroup's securities and banking division wrote down the value of its assets by $7.2 billion, before taxes, and an asset revaluation cost its consumer-lending business $745 million. Those writedowns, totaling about $8 billion, are significantly lower than writedowns taken in the first quarter and in last year's fourth quarter.

Citigroup, like other banks, is bracing for mortgages and credit cards to bring more hefty losses. Default rates continued to rise on these loans, and chief financial officer Gary Crittenden said that credit-card loss rates could soon rise to their highest levels ever.

"I think we have two to four quarters left," Crittenden said in an interview, referring to rising credit-card losses. "Because of the mix of our business, it's possible that the peak will be higher than it was in the past."

Citigroup's shares have tumbled 65 percent over the last year, and recently hit their lowest point since the day Citicorp and Travelers combined in October 1998.

Citigroup stock rose $1.38, or 7.7 percent, to $19.35.