Citigroup Inc, Wells Fargo & Co and the takeover target they are fighting for, Wachovia Corp, agreed to a two-day truce in their legal dispute at the urging of the Federal Reserve, setting the stage for a potential settlement.

The banks struck a standstill agreement, ceasing all "formal litigation activity" until noon in New York on Oct 8, Citigroup and Wachovia said in statements on Monday. The accord was "in consultation with the Federal Reserve", they said. Citigroup, based in New York, sued Wachovia and Wells Fargo for $60 billion yesterday, claiming their agreement signed on Oct 3 was in violation of Citigroup's deal to buy Wachovia's branch operations four days earlier. San Francisco-based Wells Fargo agreed to buy the whole company for $15 billion, while Citigroup's offer for parts of the bank, backed by the Federal Deposit Insurance Corp, was for $2.16 billion.

"Citigroup has made some noise, they've gotten the attention and people are taking it seriously," said Elizabeth Nowicki, an associate law professor at Tulane University in New Orleans. The Fed may be pushing the parties to work out an accord "after watching the back-and-forth for 24 hours and watching how serious Citigroup was going to be," according to Nowicki.