By John O'Donnell

FRANKFURT (Reuters) - Citigroup (C.N: Quote, Profile, Research) is mulling strategic options for its retail bank in Germany, the embattled U.S. bank said on Friday, sending its first public signal that the centrepiece of its European business may be up for sale.

Early last month, sources familiar with the matter told Reuters that the loss-making group was looking to a sale of the German retail business as part of a global reorganisation.

Citi's retail business in Germany, which makes most of its money from loans for everything from televisions to cars, contributed nearly 3 percent of the bank's global pretax profit in 2006 before the market ructions of last year.

It is the jewel in the crown of its European business and any breakup could signal a change in direction for the largest U.S. bank and global financial services powerhouse.

This month, Citigroup announced plans to shed $400 billion of assets within three years in a bid to restore profitability after huge losses.

"As part of that process we are exploring a variety of options for our retail banking business in Germany, the most profitable in terms of return on equity over the last 10 years in this market," it said in a statement issued in Frankfurt.

"This process does not include our considerable corporate and investment banking operations in Germany," it added, stressing it remained committed to German clients.

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