March 14 (Bloomberg) -- Shares in Nikko Cordial Corp., Japan's third-biggest brokerage, bucked a falling market to surge by their daily limit after Citigroup Inc. increased its takeover bid by 26 percent.

The biggest U.S. bank yesterday boosted its offer to 1,700 yen a share, or $13.4 billion, from 1,350 yen. The Tokyo Stock Exchange said on March 12 that it won't delist Nikko because of an accounting fraud, ending concern that investors would rush to sell the stock.

Four investors controlling more than a quarter of the stock rejected the earlier offer as too low. Nikko would give New York- based Citigroup more than 100 branches in Japan and an additional 30 trillion yen ($257 billion) of clients' assets in Asia's biggest economy.

``The increase shows Citigroup is serious about buying Nikko,'' said Hiroyuki Maekawa, an analyst at Deutsche Securities Inc. in Tokyo who has a ``hold'' rating on the stock. ``It's hard to be sure if this is their best pitch. Citigroup may have to go even higher to acquire a majority stake.''

Nikko shares jumped 200 yen, or 13.4 percent, to a 10-month- high of 1,690 yen in Tokyo, the highest in 10 months and one of three advancers on the Nikkei 225 Stock Average. The benchmark fell 2.9 percent to 16,676.89.

Nikko shares may rise tomorrow. Some 12 million shares were traded at 1,700 yen to 1,710 yen on Instinet Japan Ltd.'s proprietary trading system today, said Mak Ozawa, the company's head of sales trading in Tokyo. The transaction volume at the Tokyo Stock Exchange today was 1.5 million shares.

Shareholder Response

The revised offer values Nikko at 2.04 times book value, from 1.62 times for the first bid. Nomura Holdings Inc., Japan biggest brokerage, has a price-to-book ratio of 2.26 and Citigroup trades at 2.08 times book value.

Nikko today said it supports the new bid, and repeated that it plans to list its asset management division.

Harris Associates LP of Chicago, Bermuda-based Orbis Investment Management Ltd. and Southeastern Asset Management Inc. of Memphis, Tennessee, rejected Citigroup's initial offer. Toronto-based Mackenzie Financial Corp. also turned down the bid, people familiar with the matter said this week. Together, the four control about 27 percent of Nikko.

The bid for Nikko may depend on Mizuho Financial Group Inc., which holds a 4.8 percent stake. Japan's second-largest bank dropped a plan to acquire Nikko and is instead seeking an investment banking alliance with Citigroup, two company officials said last month.

`Dilemma'

``We are still considering whether to accept the offer,'' Masako Shiono, a Tokyo-based spokeswoman for Mizuho, said by telephone today. ``We haven't made a decision yet.''

Catharine Marion, a spokeswoman for Mackenzie, declined to comment yesterday, while officials for the other investors didn't return phone calls.

``Judging from today's market and the demands of overseas funds it may still be difficult for Citigroup to win control,'' said Mana Nakazora, chief credit analyst at JPMorgan Securities Japan Co. ``The dilemma shareholders face is that Citigroup may walk away if they demand too much.''

Goldman Sachs Group Inc. analyst Takehito Yamanaka raised his rating on Nikko in line with the improved Citigroup offer.

Banking Alliance

``There is a possibility that Citigroup could raise its offer price further,'' Yamanaka said in his report. ``But we believe the likelihood has decreased in comparison with the time of the last announcement.''

Revelations that former Nikko executives inflated profit in 2004 left the company in disarray and gave Citigroup an opportunity to jumpstart its Japan expansion by buying Nikko.

The two companies already have a venture in Tokyo for share sales and providing mergers advice. Regulators in 2004 shut Citigroup's private bank in Japan because it failed to comply with money-laundering rules.

``We plan to immediately accelerate growth in this, the world's second-largest market,'' Citigroup's Japan head Douglas Peterson said March 6.

To contact the reporters on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net.

Last Updated: March 14, 2007 05:56 EDT