Abu Dhabi's main sovereign wealth fund, which is alleging fraud over its $7.5 billion investment in Citigroup Inc., vowed Wednesday to fight for its "legal rights" as it seeks compensation or an exit from the deal.

Word of the dispute emerged late Tuesday when Citi said it had been hit with an arbitration claim from the Abu Dhabi Investment Authority alleging "fraudulent misrepresentations" in connection with the two-year-old agreement. The development comes the same week oil-rich Abu Dhabi agreed to pump $10 billion into its struggling neighbor Dubai.

ADIA, one of the world's biggest government wealth funds, declined to provide a copy of the claim or discuss the dispute in detail.

"It is the policy of ADIA to pursue its legal rights fully," a fund spokesman said. "ADIA declines to comment further due to binding confidentiality obligations, which ADIA intends to respect."

Citigroup earlier promised to "vigorously" fight the claims, which it said had no merit. It said ADIA was seeking to terminate the deal, made at a time the New York-based bank needed capital to offset big losses from mortgages and other investments, or receive more than $4 billion in damages.

Details of the legal battle remain murky. A Dubai-based spokesman for Citigroup had no additional comment Wednesday.

In exchange for its November 2007 investment, ADIA received equity units that paid a high annual dividend. The units were to be converted into Citigroup common shares at a price of up to $37.24 a share starting next March and continuing through September 2011, making the fund one of Citi's largest shareholders with a 4.9 percent stake.

"The structure in place seems to limit ADIA's ability to maneuver ... and exit when they want, either at a profit or a loss," said Rachel Ziemba, an analyst at Roubini Global Economics who monitors Gulf economies. She speculated that the fund's legal action might be a negotiating tactic designed to increase its leverage. "It could be an attempt to get a better deal," she said.

At the time of the deal, the fund's managing director said its investment reflected confidence in "Citi's potential to build shareholder value."

Since then, Citi has proved to be among the lenders hardest hit by the credit crisis and rising loan defaults. It turned to other big sovereign wealth funds for fresh capital following the ADIA deal, and received one of the biggest U.S. government bailout packages _ $45 billion in aid and protection against losses on more than $300 billion in assets.