NEW YORK — Its future in the balance, American International Group Inc. huddled Tuesday with Federal Reserve officials to find the cash the huge insurer needs to stay in business and avoid igniting more global financial turmoil.

The New York Fed, which is the Fed's point bank on financial crises, was involved in talks regarding AIG, a person with knowledge of the matter said. The person asked not to be identified by name because the talks are ongoing.

As the talks went on, AIG shares were getting pummeled by investors who were worried that there would be no assistance for AIG and that it may have to file for bankruptcy.

A CNBC report saying the Federal Reserve was considering providing financing to AIG brought shares off their intraday lows, although they later retreated again. The shares revived again in midafternoon trading.

Fed spokeswoman Michelle Smith said she could not make any comment on the report.

Treasury spokeswoman Brookly McLaughlin said that Treasury officials remained focused on market developments but she refused to comment on the AIG report.

AIG shares were down $1.09, or 23.2 percent, to $3.67 in late afternoon trading, rebounding from an intraday low of $1.25. Shares have traded as high as $70.13 during the past year.

Just days ago, though, U.S. Treasury Secretary Henry Paulson said the agency would not help Lehman Brothers Holdings Inc. with the kind of taxpayer-backed fundiong that JPMorgan Chase & Co. received six months ago to buy ailing Bear Stearns.

Lehman, the nation's fourth largest investment banker, filed for bankruptcy on Monday.

New York-based AIG operates a range of insurance and financial services businesses ranging from property, casualty, auto and life insurance to annuity and investment services. Those operations are considered healthy and policyholders would likely be covered even if AIG were to file for bankruptcy protection, said Donald Light, a senior analyst with Celent.

The problems at AIG stem from the more exotic financial products it offers, including some that insure risky debt and bonds against default. The value of those products have deteriorated amid the downturn in the credit markets over the past year.

A failure by AIG would send shockwaves through an already battered financial system because of how many banks and other financial firms that have exposure to AIG through complex insurance contracts.

"It might not just bring down other financial institutions in the U.S. It could bring down overseas financial institutions," said Timothy Canova, a professor of international economic law at Chapman University School of Law. "If Lehman Brother's failure could help trigger AIG's going down, who knows who AIG's failure could trigger next."

If AIG files for bankruptcy, billions of dollars of insurance contracts known as credit default swaps would likely be wiped out. Much of those losses would be absorbed by the companies holding the contracts, which were sold by AIG.

For the three quarters ended in June, AIG itself has lost about $25 billion in the value of its credit default swaps portfolio.

Late Monday night, all three major agencies — Standard & Poor's, Moody's Investors Services and Fitch Ratings — cut AIG's ratings at least two notches. While the new ratings are all still considered investment grade, the downgrades add to the pressure on AIG as it seeks tens of billions of dollars to strengthen its balance sheet.

"Getting some kind of liquidity facility in the next couple of days will help confidence," Rodney Clark, a credit analyst at S&P, said in an interview.

AIG spokesmen did not return calls seeking comment on the impact of the downgrades. But last month, the company estimated in a regulatory filing that a one-notch downgrade of its long-term senior debt ratings by both S&P and Moody's would force it to post $13.3 billion in extra collateral.

The need for that extra capital would put a constraint on AIG's day-to-day liquidity position, which is why the company has been seeking new financing or capital investments.

"While there is a chance the company can work its way through its liquidity problems if it can secure substantial bridge financing, we think this will be challenging to execute it in the current onerous credit environment," Credit Suisse analyst Thomas Gallagher wrote in a research note to clients.

In its efforts to improve its liquidity, AIG has already received support from the New York governor and state's insurance regulator. On Monday, Gov. David Paterson said he would support a measure that allows AIG to use $20 billion of assets held by its subsidiaries to provide cash needed to stay in business.

Paterson asked New York state insurance regulators to essentially allow New York-based AIG to provide a bridge loan to itself. The governor has also asked the head of New York's insurance department to talk with federal regulators about providing an additional bridge loan to AIG.

"AIG still remains financially sound," Paterson said.

That $20 billion in support though is unlikely to be nearly enough to help AIG.

S&P's Clark said the financing facility agreed upon with New York regulators is a "helpful starting point," but AIG will "definitely need added capital and liquidity."

The Fed on Monday asked Goldman Sachs Group Inc. to work with JPMorgan Chase & Co. about a possible short-term loan to keep AIG in business, said a person familiar with the request who could not speak publicly because talks were still ongoing. The loan could be for about $70 billion, the person said.

Tuesday morning, while announcing fiscal third-quarter earnings, Goldman Sachs Chief Financial Officer David Viniar said during a conference call that he was "not going to comment on rumors about where we are in helping AIG." He said they are "good important clients" but refused to discuss the matter further.


AP Business Writer Ieva M. Augstums reported from Charlotte, N.C. AP Business Writers Joe Bel Bruno in New York and Marty Crutsinger in Washington contributed to this report.