By Benjamin Pimentel

SAN FRANCISCO (Dow Jones) -- Shares of Palm Inc. rose Monday, gaining on a Citigroup upgrade to hold following the tech company's introduction of its new Pre smart phone and the potential it offers as a "game changer."

The shares added nearly 11% at one point in morning trading but gave much of this early advance back. They stood lately at $6.06, up 1.7% on the session.

Citigroup analyst Jim Suva previously had rated Sunyvale, Calif.-based Palm (PALM) as sell but raised his view to hold, saying the company's newly introduced Pre smart phone "has the potential to be an iconic handset."

"Pre looks like a game changer for Palm and [a] sell rating is no longer warranted," Suva said in a research note. "With the company's long-term viability in doubt, Palm debuted the best new handset we have seen in quite some time."

Palm's new handset won rave reviews at the Consumer Electronics Show in Las Vegas last week, giving the company some much-needed credibility with a savvy and discriminating audience.

Still, Suva noted that Palm will likely continue to face challenges in the handset market.

"Despite our enthusiasm for the Pre, we're still forecasting significant operating losses in calendar year 2010 despite our increase of estimates from this new product," Suva told clients.

"Also, we think Palm could have a very rugged February quarter and potentially tough May quarter until Pre is actually launched. We think many carriers/consumers will wait for Pre rather than order older Treos or Centro," he wrote.

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