NEW YORK, US (Reuters) - AIG, the giant insurer bailed out by the U.S. government, posted its second straight quarterly profit, helped by recovery in the value of its investments, but its underlying business remained weak and its shares fell.

"It is clearly still a troubled company," said CreditSights analyst Rob Haines. "Its operations are clearly weaker than some of its higher quality competitors. AIG used to be one of those companies."

American International Group Inc (AIG.N) shares, after rallying ahead of the results on Thursday, closed down US$3.80, or 9.67 percent, at US$35.48 on Friday.

The insurer's latest results included US$1.95 billion in special gains, sending AIG into the black once more, and helping to offset declines in operating revenue at its insurance businesses.

Net income was US$455 million, compared with a loss of US$24.47 billion, in the year-earlier quarter. Its profit in the second quarter was US$1.8 billion.

The gains in the latest quarter included improvement in the value of securities held by AIG Financial Products, basically a reversal of the losses that were the primary driver in AIG's near collapse last year.

AIG has received up to US$180 billion of federal aid, including more than US$80 billion in loans, and is now 80 percent-owned by U.S. taxpayers.

"We continue to focus on stabilizing and strengthening our businesses, but expect continued volatility in reported results in the coming quarters," said Chief Executive Robert Benmosche, in the earnings statement.

The company had sought to sell off major assets to help repay the United States. But it has struggled to find buyers willing to pay enough.

But AIG said it will significantly reduce its federal loan balance in the fourth quarter as it completes a US$25 billion pact with the Federal Reserve, giving the Fed a preferred stakes in life insurance units, AIA and Alico.

As a result, AIG will record a charge of about US$5 billion related to that deal and another US$1.4 billion charge from its US$2.15 billion October sale of Taiwan life insurance unit Nan Shan.

DIFFICULT LANDSCAPE

CreditSights' Haines said it was a positive that AIG did not have any "bombshell" investment losses in the latest quarter, but that it would need to make bigger strides in repaying taxpayers and show several quarters of growth within its insurance operations, before anyone could take it seriously.

Insurers widely reported a drop in sales to policyholders in the third quarter, as the effects of rising unemployment and a contraction in spending reduced demand for coverage. But the situation at AIG, which had already lost business in the wake of its taxpayer bailout, may be especially acute.

AIG's general insurance operations reported a 13 percent decline in net policy sales. Life insurance and retirement services had a 16 percent drop in premium income.

The divisions reported quarterly operating profits thanks to higher net investment income, compared with losses a year earlier.

AIG, for the second quarter in a row, did not hold its customary post-earnings call with investors. Management was also not available to comment further to the media, said a spokeswoman.

It may be that Benmosche, who had been vocal in his early days as CEO, is waiting until he has better news to divulge, or at least a rock solid plan for recovery.

"If a company that has a severe economic or financial problem and has not yet arrived at a solution that is realistic, it is much better not holding news or investor conferences," said Howard Rubenstein, president of public relations firm Rubenstein Associates.

Rubenstein was not speaking specifically about AIG, a company he has advised in the past.