AIG downgraded, fights for funds

American International Group Inc had its credit ratings cut by Standard & Poor's and Moody's Investors Service, threatening efforts to raise funds to keep the company afloat and roiling global financial markets.

S&P lowered AIG's long-term counterparty rating three grades to A- because of "reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses," the rating company said on Monday. Moody's cut AIG's senior unsecured debt rating two grades to A2.

The downgrade of AIG is the latest tremor to shake the global financial industry, less than a day after Lehman Brothers Holdings Inc filed for Chapter 11 bankruptcy protection and Merrill Lynch & Co sold itself to Bank of America Corp for about $50 billion. Stock markets from Tokyo to London tumbled as investors weighed the impact of a potential collapse of the largest US insurer by assets.