* Greece says probe launched into Citi email
* Citi says no wrongdoing by the bank or employees
* Email cites "increased noise" over debt restructuring
(Adds detail, background)
By Lefteris Papadimas and Douwe Miedema
ATHENS/LONDON, April 21 (Reuters) - Citigroup said it had done nothing wrong after Greece launched a probe into market rumours about an imminent restructuring of the country's sovereign debt that had hit Greek bank stocks.
Greek banks dropped 4.6 percent on Wednesday, with traders citing an email that said the country could restructure its debt as soon as this weekend, showing how nervous investors are about Greece.
Greek government and court officials said on Thursday that a prosecutor had launched an investigation, prompted by an e-mail sent by a employee of Citigroup, the third-largest U.S. bank.
"The prosecutor is investigating this particular email and the person who sent it because it spread false rumours with an effect on the stock market," a court official said, speaking on the condition of anonymity.
In defiance of market sentiment, Greek, European Union and International Monetary Fund officials have said the country will not restructure its debt. A strong majority in a Reuters poll is saying Greece will do just that in the next two years.
Citi said the bank and its employees were not to blame. "We are cooperating with the authorities and do not consider there to have been any wrongdoing by Citi or its employees," the bank said in an emailed statement.
The email, the content of which was forwarded to Reuters and confirmed by Citi, cites "increased noise" over a Greek debt restructuring "as early as this Easter weekend", and notes how spreads in the bond market were widening.
A time stamp on the e-mail, which was also published in Greek newspaper Imerisia, showed it was sent at 1342 GMT, some 20 minutes after an already declining market started losing ground more rapidly.
Greek five-year Credit Default Swaps (CDS) -- an indicator of the risk of default of an underlying bond -- hit fresh record highs on Wednesday, with markets citing a lingering perception of an upcoming restructuring.
"It's understandable that the minister tries to quell rumours, I would do the same in his place. But there's no way the rumours will stop with actions like this," a trader said, speaking on the condition of anonymity.
It is the second time in a few months that Greek prosecutors leapt into action on suspicion that unsubstantiated e-mails caused jitters on the local bourse.
Earlier this year, authorities arrested a jobless man on the charge of spreading rumours about a Greek bankruptcy in an e-mail he sent from an internet cafe to banks and media. He is facing misdemeanour charges.
(Additional reporting by Harry Papachristou in Athens and Dominic Lau in London; Editing by Erica Billingham)