NEW YORK (Bloomberg) — A collapse of American International Group Inc., the insurer seeking to raise as much as $80 billion, would have consequences for financial firms around the globe, analysts and investors said.

Wall Street's top firms, and the biggest companies in Europe and Asia, have bought protection on $441 billion of fixed-income assets from AIG to guard their investments against potential bankruptcies. A failure by New York-based AIG may cause those protections to vanish. AIG also insures some of the largest assets in the world, doing business in more than 100 countries.

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

AIG said it is pursuing "alternatives to increase short- term liquidity" and won't reduce subsidiaries' capital. The life and property-casualty insurance units "continue to operate normally," AIG said n a statement distributed by Business Wire.

Wall Street's largest firms met at the New York Federal Reserve for a fifth day yesterday, discussing ways to save AIG. AIG, with $1 trillion in assets, piled up net losses totalling $18.5 billion in the past three quarters on write downs tied to the collapse of the US subprime mortgage market.

"If AIG goes under, there could be a domino effect," said Andrea Cicione, a credit strategist at BNP Paribas SA in London. "AIG is very connected to the financial system and it is very connected to the real economy."

Financial institutions are tied to AIG through its financial products unit, which wrote protection on a decline in the value of collateralised debt obligations, or CDOs.

Merrill Lynch & Co., which agreed to be acquired by Bank of America's Corp. this week, held $6 billion of collateralised debt obligations hedged with insurers at the end of the most recent quarter, according to filings.

"It's impossible to know which insurance company they're referring to, though if it is AIG, it may have emboldened AIG to go to the Fed," said Janet Tavakoli, president of Tavakoli Structured Finance in Chicago.

AIG is the largest corporate insurer in the US. It sells protection against some of the biggest risks, insuring planes and commercial shipping and providing coverage against terrorist attacks.

AIG Global Real Estate's portfolio includes over 53 million square feet of property in more than 50 countries, the company said on its website.

Lehman Brothers Holdings Inc.'s London landlord, Songbird Estates Plc, said rent payments on the bank's offices in the Canary Wharf financial district are insured by AIG. The insurer is committed to paying up to four years of rent in the event of a default, Songbird said a statement yesterday.

AIG is the second-largest property and casualty insurer and the seventh-largest life insurer in the US, according to 2007 data compiled by A.M. Best Co. The company insures high-end homes through its Private Client Group and sells auto coverage online through AIG Direct.

More than 40 percent of AIG's revenue comes from property and casualty customers. AIG provides coverage for offshore oil drilling platforms in the Gulf of Mexico, warrantees for televisions in Brazil, and insurance that complies with Islamic law in Bahrain.

AIG's insurance businesses have enough money to pay claims, said David Neustadt, a spokesman for Eric Dinallo, the New York State insurance superintendent.

"AIG's problem is not that it is short of capital, unlike some other institutions," Neustadt told reporters today. "It's a liquidity problem.

"We're ensuring that the new assets that come in will protect policyholders," he said. "That's our job."

AIG probably has one day to raise $75 billion to $80 billion, New York Governor David Paterson said yesterday on cable-television channel CNBC. A collapse would be felt beyond the insurance industry, he said.

"It affects jobs, it affects policyholders, it affects drivers," he told CNBC. "This is a catastrophic problem waiting if we're unable to contain it."

The Fed urged AIG to seek private capital and discouraged the insurer from expecting a loan from the central bank, according to two people with knowledge of the discussions. Goldman Sachs Group Inc. and JPMorgan Chase & Co. are working with AIG to determine how much the insurer needs, said two more people, all of whom declined to be identified because negotiations are private.

"AIG poses a systemic risk because it's a large counterparty in the financial system," said Prasad Patkar, who helps manage the equivalent of $1.8 billion at Platypus Asset Management in Sydney. "It's too big to be allowed to fail."

Without outside help from the US government or investors, AIG will be forced into bankruptcy, said Maurice "Hank" Greenberg, its former chairman and chief executive officer. Greenberg, who controls the largest stake in the insurer, saw his holdings decline by $3.1 billion last week.

AIG would be able to sell assets to raise the funds it needs "given some time," Greenberg said on CNBC today. Allowing it to fail would create a "systemic" issue, he said.