Updated from Monday, Feb. 23

American International Group ( AIG) shares came under further pressure Tuesday as reports circulated that the insurance giant plans to post a massive loss and may liquidate assets or seek further government aid to stay afloat.

The New York-based insurer's stock dropped 13 cents, or 25%, to 40 cents in afternoon trading. A year ago, before the government's emergency rescue of the firm, AIG shares traded above $50.

Several outlets reported on Monday that AIG planned to announce up to a $60 billion loss the following week, and was seeking additional assistance from the government. Such a loss would likely trigger more ratings downgrades, forcing the firm to put up more cash as collateral for its debt obligations.

AIG responded by saying it "has not yet reported fourth-quarter and 2008 year-end results," and is working with the Federal Reserve Bank of New York "to evaluate potential new alternatives for addressing AIG's financial challenges."

Bloomberg initially reported on Tuesday that AIG was also considering two bids for its American Life Insurance subsidiary to score extra cash. Though MetLife ( MET) made a preliminary bid of $11.2 billion, according to the report, though the price deteriorated to $8 billion due to its financial condition. Axa ( AXA) made another bid for parts of the subsidiary, excluding operations in Japan.

However, later in the day, Bloomberg indicated that AIG's plan to sell assets to repay $60 billion in government loans had failed because there were not enough bids of adequate value. Instead, it may seek to overhaul its bailout package by swapping common shares for the government's preferred stake -- similar to a plan Citigroup also is exploring -- or restructuring loans into a combination of debt, equity, cash and stakes in its operating businesses.

Those plans were first reported by the Wall Street Journal on Tuesday, which said AIG and the government have been discussing the changes since December and plan to announce them by next Monday.

The government already holds nearly an 80% stake in AIG, after loaning $150 billion in taxpayer dollars to prevent the firm from collapsing last fall. Its initial losses stemmed from sour bets on residential mortgages and credit default swaps, though problems have reportedly spread to other businesses as economic conditions have worsened.

Under current terms, the government can't take an ownership stake in the firm larger than its current 79.9%, complicating arrangements for further aid.

AIG, once the world's largest insurer, would be the latest in a string of major U.S. companies -- including Citi, Bank of America ( BAC), General Motors ( GM), Chrysler and Ford ( F) -- that may need additional government support to stay float as they struggle under the weight of the financial crisis.

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