Frankfurt prosecutors yesterday cleared six Citigroup traders of criminally manipulating the euro zone government-bond market, lifting one of the biggest threats to the US bank's reputation.

The ruling prompted an angry response from Bafin, Germany's financial market watchdog, which said it stood by its finding that Citigroup traders had manipulated Eurex government bond futures.

The case is still being investigated by authorities in several European countries, including the UK's Financial Services Authority.

"For us, the case is closed," said Doris Moller-Scheu at the Frankfurt prosecutor's office. Its statement said it could not show an intent to deceive, a requirement under the law that applied when Citigroup executed the controversial transactions, taking advantage of the liquidity differentials between Eurex futures and cash bonds on the electronic EuroMTS trading platform.

In August last year, Citigroup bid up dormant Eurex futures, which drive all euro zone government bond prices, before selling about €12.4 billion of cash bonds within seconds on EuroMTS in a move that took advantage of rival dealers' obligatory price quotes on the system.

Slightly later, it bought back €4 billion of the cash bonds, pocketing profits of about €17.5 million.

The Frankfurt prosecutor added that under a new law, which took effect last October, such trades could, in the future, be punishable.