Citigroup posted a $7.6 billion quarterly loss Tuesday, but its stock had a small gain as declining loan losses raised hopes that the bank's deep problems might soon end.

CEO Vikram Pandit said loan performance outside the U.S. looks strong, adding to investors' perception that the bank is recovering after toxic assets forced it to seek three separate government rescues.

"They've crept out of the abyss like everyone else," said Henry Asher, president of Northstar Group, whose clients own Citi shares.

But, Asher added, "They have a long way to go before they start reporting significant profits."

The bank, which had a $17.3billion loss in the year-ago quarter, is still facing heavy challenges. When asked about the outlook for loan losses on a conference call with Wall Street analysts, Pandit said losses could increase in the first quarter.

"U.S. consumer credit remains an issue," Pandit said.

Pandit is under significant pressure to turn around Citigroup. He has been at Citi's helm for more than two years, during which time the bank has posted nearly $30billion in net losses.

Saudi Prince Alwaleed bin Talal, a major Citigroup shareholder, said in a recent TV interview that Pandit must show progress this year.

Some investors were skeptical that Citi can quickly right itself.

They worry about further credit losses ahead, as well as the potential for sweeping changes in banking regulation, said Matt McCormick, a money manager at Bahl & Gaynor Investment Counsel.

There were still positive signs in credit trends at the bank. Citigroup set aside $8.2 billion in the quarter to cover credit losses and other items, compared with $12.7 billion in the 2008 fourth quarter. Loan losses were $7.1 billion, up 16% from a year earlier but down from $8 billion in the third quarter.

Citigroup, whose shares rose 3.5%, or 12 cents, to $3.54, is the second major bank to report quarterly results, following JPMorgan Chase.

Bank of America, the largest U.S. bank, and Wells Fargo are due to announce their results Wednesday. Goldman Sachs and Morgan Stanley are set to disclose their results tomorrow.