NEW YORK (Reuters) - Shares of American International Group Inc (AIG.N), the world's biggest insurer, fell sharply on Tuesday as investors worried that the company's large exposure to the mortgage markets could trigger the need to raise fresh capital.

"AIG is in a weak position as either a seller of equities or assets," said Clifford Gallant, an insurance analyst with Keefe, Bruyette & Woods.

"Either way there is the risk of charges or dilution" for investors, Gallant added.

AIG shares were down 14.9 percent, or $3.40, at $19.36 in afternoon trading on the New York Stock Exchange.

AIG, which has over the past three quarters recorded in excess of $20 billion in unrealized losses on credit default swaps that guarantee mortgage-linked securities, raised more than $20 billion earlier this year, heavily diluting investors.

Investors are growing increasingly skittish ahead of a special meeting called for later this month. Fears are compounded by worries that more losses may be in the pipeline, stoked by signs that other financial services firms, including Lehman Brothers Holdings Inc (LEH.N), may be hit anew by mortgage losses.

AIG's new chief executive, Robert Willumstad, is due to unveil a sweeping turnaround plan for the insurer on September 25, which could include carving the company into smaller parts.

The insurer's financial products unit, home to the thorny credit default swaps, is seen as one unit that AIG could try to sell or spin off. But it could be problematic to do so, as counterparties might be reluctant to sign off on such a deal if it meant the guarantees would no longer be backed by AIG's financial strength ratings, and capital position.

(Reporting by Lilla Zuill, editing by Gerald E. McCormick)

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