WASHINGTON (AFP) - - The battle over troubled lender Wachovia Corp. has heated up after bank Wells Fargo & Co. secured a court ruling overturning an earlier injunction halting their proposed merger.

The injunction had been granted by the New York State Supreme Court to Citigroup, a rival suitor, late Saturday.

Citigroup was blindsided last week in its bid to complete a tie-up after Wachovia, which originally agreed to a merger with the banking giant, took what it deemed to be a better offer from Wells Fargo.

But in a statement late Sunday, Wells Fargo announced it had asked an appeals court to strike down the New York court injunction and was successful in its request.

"We are pleased that the unfounded order entered yesterday has been vacated," the bank said in a statement. "Wells Fargo will continue working toward the completion of its firm, binding merger agreement with Wachovia Corporation."

Wachovia, for its part, said earlier Sunday that it "continues to believe its agreement with Wells Fargo, which involves no government assistance, is proper and valid."

After agreeing in principle to a US government-backed deal forged last Sunday with Citi, Wachovia reversed course and announced Friday its preference for Wells Fargo.

Citigroup's share plummeted after the news, closing 18 percent lower at 18.35 dollars on Friday. Some analysts suggested the loss of the deal would leave question marks over the solidity of Citigroup's finances.

The Wall Street Journal reported Monday that the US federal government was worried about the battle for Wachovia, and officials from the Federal Reserve were pushing for Citigroup and Wells Fargo to reach a compromise.

The leading plan under discussion, the newspaper said, calls for Citigroup and Wells Fargo to divide Wachovia's network of 3,346 branches along geographic lines, with Citigroup getting Wachovia's branches in the Northeast and mid-Atlantic regions and Wells Fargo taking those in the Southeast and California.

Wells Fargo would also take over Wachovia's asset-management and brokerage units, according to the Journal's report.

Wachovia had been in danger of failure after its shares lost more than 70 percent of their value in a year, as investors feared a panic run on the beleaguered institution.

Many thought the once fourth-biggest US bank by assets would share the fate of its rival Washington Mutual, which was seized by the government and sold to investment bank JPMorgan Chase in one of the biggest-ever US bank failures.

redrawing The battle for Wachovia is part of the great redrawing of the US financial landscape as commercial and investment banks go bust or seek takeovers because of losses linked to the subprime housing market.

The planned acquisition by Wells Fargo, which traces its roots to the Wild West and the Gold Rush of the 19th century, would give it the biggest network of branches in the United States.

Wells Fargo has offered 15.1 billion dollars in an all-stock deal to buy all of Wachovia and it stressed that its proposal did not have any government involvement or taxpayer risk.

Citigroup offered to pay 2.16 billion dollars in stock for Wachovia's banking activities and some of its debts.

Citigroup would assume up to 42 billion dollars of losses from a pool of 312 billion dollars of loans held by Wachovia; the Federal Deposit Insurance Corporation would absorb losses beyond that.

The takeover was orchestrated with the Federal Reserve and Treasury Secretary Henry Paulson in consultation with US President George W. Bush.