It would sell 1.5 billion shares of Citigroup common stock as a step toward unloading 7.7 billion shares in the company, the U. S. Treasury said on Monday.

The Treasury said Morgan Stanley would act as the sales agent, authorized to set up the sale "under certain parameters."

It was further reported that the Treasury converted $25 billion of preferred stock purchased with Troubled Asset Relief Program funds to common stock at the price of $3.25 per common share. The government now owns 27 percent of the company.

It would hold separate sales for its Citigoup trust preferred securities and for warrants of Citigroup common stock, the Treasury said.

According to the reports, Citigroup shares dropped sharply on the news, falling more then 4 percent in early afternoon trading. (With Inputs from Agencies)