In the continuing meltdown in the US financial market, World's largest insurer, American International Group was on Monday downgraded by credit rating agencies and was racing against time to find a multi billion dollar infusion to stay afloat.

Federal reserve officials and two leading banks, JPMorgan Chase and Goldman Sachs, were negotiating to put together $75 billion package to save the insurance giant to stave off crisis.

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AIG has sought $40 billion in bridge loan to stave off the crisis. But the Feds rebuffed the request and the Wall Street Journal reported that unless funds were forthcoming AIG too might follow Lehman Brothers in declaring bankruptcy which could add to the meltdown of the markets.

AIG's ills came to fore, when three leading credit rating agencies - Standard and Poor's Moody's and Fitch - lowered the company's credit scores.

The downgrades, financial analysts said would make things difficult for AIG and the New York Times said it would force the company to turn over billions of dollars in collateral to its derivatives' trading partners.

In the face of uncertainty, shares of AIG plummeted more than 60 per cent and the Times quoted two people briefed on the situation as saying that the company's potential write offs are mounting and may reach $60 billion to $70 billion.

The Times said that most of AIG's businesses are healthy, but its troubles grew from one unit that dealt in complex debt securities and derivatives and now threatens to drain cash more quickly than the financing package can be assembled.

The complex discussions, continued into the night as a deal was sought before United States markets opened this morning. It involved New York state regulators, federal regulators, private equity firms and Wall Street banks that rely on AIG's ability to honour its derivatives' contracts, as they did with Lehman Brothers, the paper said.

"It's not just the failure of one company," Julie A Grandstaff, vice president and managing director of StanCorp Investment Advisers was quoted as saying.

"It's the ripple effect of the disappearance of counter parties" that was spurring urgent efforts to bolster AIG.

The insurer itself has had three chief executives in the last three and a half years and Times quoted one person briefed on Monday's discussions as saying its officials seemed uncertain about how to proceed.

The Fed was not able to provide the $40 billion bridge loan because it oversees banks, not insurers.