NEW YORK, US: The current financial crisis took a heart-stopping turn yesterday when a cash crisis at American International Group (AIG) left the insurance giant facing total collapse.

Ratings agencies cut the company's credit ratings yesterday morning, forcing the already cash-strapped firm to immediately raise another US$14.5 billion (S$20.7 billion) to cover its obligations - money that it does not have.

AIG is such a big player in insuring risk for institutions around the world that its failure could shake the global financial system and complicate efforts by governments to contain the financial storm.

London and Tokyo tumbled more than 4 per cent, hitting their lowest levels for more than three years. Russia's main RTS stock market suspended trading after falling by more than 11.47 per cent, following a move by the No. 2 Micexstock market to do the same after it plunged an unprecedented 17 per cent.

Elsewhere in Asia, Hong Kong dived 5.4 per cent and South Korea was down a whopping 6.1 per cent. Singapore's benchmark Straits Times Index was down 1 per cent, adding to Monday's 3.3 per cent slide.

With fear gripping exchanges worldwide, the US Federal Reserve, European Central Bank, Bank of England and Bank of Japan together injected US$210 billion into the money markets on Tuesday to boost liquidity.

In Singapore, the Monetary Authority of Singapore said that interest rates remained stable and no extraordinary measures had been needed. But it added that it 'stands ready to inject additional liquidity if the situation so warrants'.

This sort of uncertainty reigned for much of the day as news reports streamed in about various attempts to raise capital and save the insurance giant.

New York state had, on Monday, already allowed AIG to loan itself US$20 billion by borrowing against its assets.

But AIG needed more funding, and by lunchtime yesterday, the word was that its capital needs had soared to US$75 billion. Other reports said a US$40 billion bridge loan request from the Fed had been rebuffed and that the US government was instead pushing US banks JPMorgan Chase and Morgan Stanley to try to put together private sector money for AIG.

As the day wore on and no such solution seemed forthcoming, New York Governor David Paterson warned on CNBC television that AIG had just one more day to raise US$75 billion to US$80 billion dollars to stave off bankruptcy.

On Wall Street last night, AIG shares plummeted 70 per cent at the open, adding to a 61 per cent fall on Monday.

But the shares recovered after CNBC television said the US government had a change of heart and an aid package from the Fed might arrive after all.

The Dow also seesawed, recovering from a 155-point loss at the opening bell to a gain of 43 points to 10,960.99 by 1.30am Singapore time.

Former AIG chief executive Hank Greenberg made a strong appeal for government help in an interview on CNBC last night, saying that it is in the 'national interest' that AIG be saved.

'They have tentacles into everything, and they are certainly critical to the ongoing health of the financial markets, or lack of health,' Mr Anton Schutz, president of Mendon Capital Advisors Corp in Rochester, New York, said in an interview with Bloomberg Television.

The potential collapse of AIG comes hot on the heels of news on Monday that two titans of Wall Street had succumbed to the credit crisis.

Weighed down by US$613 billion in debt, Lehman Brothers filed for bankruptcy. Hours later, Merrill Lynch announced that it was being taken over for about US$50 billion by Bank of America.

Lehman has started selling off pieces of itself, including the brokerage and asset-management units that were not included on Monday when the holding company filed for Chapter 11 bankruptcy.

Barclays, Britain's third-biggest bank, is in fresh talks to buy Lehman's broker-dealer unit to increase its US securities revenue, just two days after abandoning plans to acquire the entire securities firm.

REUTERS, AGENCIES