Citigroup, Wachovia and Wells Fargo called a temporary truce Monday, several hours after Citigroup sued the other two seeking $60 billion in damages.

The three banks, working with the Federal Reserve, released a statement just after the close of the U.S. stock markets saying they would halt all litigation against each other until noon on Wednesday.

Litigation has been virtually non-stop since Friday when Wells Fargo (WFC) upended a government-brokered deal that allowed Citigroup (C) to buy faltering Wachovia’s (WB) banking assets for $2.1 billion.

Early Friday Wells Fargo offered to pay $15.4 billion for all of Wachovia’s assets, and Wachovia agreed.

Citigroup immediately challenged the deal, saying its pact with Wachovia gave it “exclusive rights” to Wachovia’s assets.

The three spent all weekend battling various court orders and appeals.

Citigroup’s lawsuit filed Monday in New York State Supreme Court charges Wachovia with a “bad faith breach” of their earlier agreement.

Citigroup is seeking more than $20 billion in compensatory damages and more than $40 billion in punitive damages from Wells Fargo for “tortious interference” in Citigroup’s pact with Wachovia.

In a statement accompanying the suit, Citigroup said it agreed to “assist with a rescue” of Wachovia at the request of the government after Wells Fargo walked away from negotiations with Wachovia.

“Had an agreement between Citi and Wachovia not been reached on September 29, Wachovia would have failed the following day and the debt issued by its holding company would have collapsed with potentially devastating implications for the stability and security of the financial markets,” Citigroup’s statement said.

Citigroup said the deal would have benefited clients and shareholders of both Citigroup and Wachovia.

Instead the agreement was “subverted by the unlawful conduct of Wachovia, Wells Fargo” and their respective management teams, directors and advisors, according to Citigroup.

The lawsuit, no doubt marking the beginning of a protracted legal battle, would seem to be exactly what Federal Reserve officials are trying to avoid.

A report in The Wall Street Journal said the government is trying to negotiate a compromise between Citigroup and Wells Fargo in which Wachovia’s assets would be divided between the two dueling suitors.

Neither Citigroup nor the New York Federal Reserve responded to messages left seeking comment, but Monday’s statement reporting the truce seems to confirm that the three banks are working with the government to find a resolution.

Under a plan reportedly being discussed Sunday night, Citigroup and Wells Fargo would divide Wachovia’s 3,346 branches geographically. Citigroup would get the branches in the Northeast and Mid-Atlantic regions, and Wells Fargo the Southeast and Western branches.

Citigroup said in its statement announcing the lawsuit that it “remains willing” to work out a deal with Wachovia.

In news first reported on Fox Business Network, Sheila Bair, chair of The Federal Deposit Insurance Corp., which brokered the deal between Citigroup and Wachovia, said she expects “a resolution” in the dispute today.

No further details were available, but she was likely referring to the litigation truce.

Analysts have said Wells Fargo’s deal favors taxpayers and Wachovia’s shareholders.

Derek Ferber, a research analyst at SNL Financial in Charlottesville, Va., said Friday that a Wachovia deal with Wells Fargo takes taxpayers off the hook for billions of dollars in potential losses to Wachovia’s mortgage related assets. Citigroup’s deal included guarantees by the FDIC for losses up to $42 billion.

In addition, Wachovia shareholders will get paid for their investments in a deal with Wells Fargo. Under the Citigroup deal, shareholders got nothing, Ferber said.

Wells Fargo said it will acquire all of Wachovia’s businesses and obligations, including its preferred equity, indebtedness and banking deposits. Boards of both Wells Fargo and Wachovia signed off on the deal.

Wells Fargo, which has managed the credit crisis better than many of its rivals, said it expects to incur $10 billion in merger and integration charges from the deal.

To help pay for the deal, Wells Fargo said it plans to raise $20 billion in a common stock offering.