By Colin Barr
May 24, 2010

Is it time to trade into Citigroup? Analysts at Goldman Sachs say it is, based on signs that a volatile market will push trading revenue up yet again in the second quarter.

Citi

shares rose 4% in midday trading Monday, even as most of the big financial stocks gave back some of the gains they chalked up in Friday’s rally. Goldman raised Citi to buy from neutral and set a $4.50 price target on the stock, which recently traded just below $4.

Goldman Sachs (GS) analysts say clients should buy shares of the universal banks — Citi, JPMorgan Chase

, and Bank of America

— because of signs that consumer credit is improving and capital markets are percolating. Trading has been a huge contributor to bank earnings in recent quarters, and analysts led by Richard Ramsden say they see no sign of that slowing down now.

“Activity levels are elevated particularly in macro businesses such as rates and FX,”  the analysts say, referring to interest rates and foreign exchange. “While pegging a ‘normal’ level of fixed income trading has been extremely difficult, we think 2Q is off to a good start.”

Goldman also cut Wells Fargo

 to neutral from buy, saying it sees “more relative value” for now at the bigger banks. Wells fell 3% to $29.

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