* In talks with Indian investor for equity- official
* Uncertainty about fund infusion remains
* No public bailout for Kingfisher - minister
* Shares end 3.8 pct lower; down 64 pct in 2011 (Recasts, updates with Mallya comment in paragraph 13)
By Aniruddha Basu and Swati Pandey
MUMBAI, Nov 18 (Reuters) - Shares in India's beleaguered Kingfisher Airlines fell as much as 18 percent on Friday, even as it was in talks with a potential investor and met with lenders in a scramble to shore up its finances.
The airline's chairman told the Financial Times that the carrier was close to securing a $250 million equity injection. An official at the UB Group, which controls Kingfisher, told Reuters that the airline was talking to an Indian investor for equity funding but declined to give details or be identified.
India's No.2 carrier, which has never turned a profit, saw its losses double in the September quarter on high fuel costs and fierce price competition. It has cancelled scores of flights in recent weeks, leading investors to fret about its future.
"There is a shortage of cash. They are not being able to price tickets properly because of increased competition. All airlines are suffering, it's not just this one," said S. Vishvanathan, CEO of SBI Caps.
State Bank of India, one of the carrier's lenders, has hired its SBI Caps unit to study the viability of Kingfisher's business model and advise banks.
Kingfisher Chairman Vijay Mallya, a flamboyant liquor baron who named the airline after his popular beer, was seen leaving State Bank of India's headquarters in south Mumbai on Friday afternoon in a white Rolls Royce.
He did not speak to reporters and a Kingfisher spokesman declined to comment on the meeting.
Kingfisher hopes to launch a rights issue as well as an issue of global depositary receipts (GDRs), but tapping public investors would be difficult amid current market conditions.
Kingfisher also wants the government to drop a ban on foreign carriers from owning stakes in Indian airlines, a move New Delhi is contemplating that would clear the way for an overseas operator to take a stake in the carrier.
"In this kind of scenario short term players may not invest. It's only long-term players who may invest for strategic reasons," Vishvanathan told Reuters.
"Capital markets on the whole in India are closed. That is not in the question. Even for good companies it is increasingly getting difficult so any activity in airlines will take time," he added.
The Financial Times reported that Mallya said he was close to sealing a $250 million equity injection from a wealthy Indian to recapitalise the carrier, and was also near a deal for a short-term loan of 6 billion rupees ($117 million) from banks.
Mallya said in a message on the social media site Twitter that the FT report had been "factually wrong" but he later tweeted that those errors had been corrected.
The chairman of SBI, Pratip Chaudhuri, declined comment.
Investors, including banks who hold about 24 percent in the airline, have been increasingly worried over Kingfisher's health after it sought further cushion to ease its debt burden of $1.3 billion.
Kingfisher has asked banks for 7-8 billion rupees additional working capital, as well as 1.5 billion of term loans to fund fleet reconfiguration as it ends its budget offering, Ravi Nedungadi, chief financial officer of UB Group, said earlier this week.
Shares in Kingfisher, which has been asked by creditors to raise $160 million in equity, recouped some of their losses on Friday to close down 3.8 percent. The stock hit an all-time low last week and is down 64 percent in 2011, shrinking its market value to $245 million.
"The fresh infusion of capital in Kingfisher is still uncertain," said K.K. Mital, chief executive for portfolio management services at Globe Capital.
"There is nothing concrete coming from the company, except that flights still continue to be cancelled, and the market is reacting to that uncertainty," he said.
India's civil aviation minister ruled out a public bailout for Kingfisher or any other airline, urging private carriers to put their own house in order..
The Centre for Asia Pacific Aviation (CAPA) has forecast a record $2.5 billion to $3 billion loss for Indian airlines for the year ending March 2012, with state-run Air India alone likely to account for more than half of it.
Kingfisher cut its debt through a restructuring earlier this year by issuing shares to 14 banks, including State Bank of India and ICICI Bank. It recently recast its business model, doing away with its low-cost service Kingfisher Red.
($1 = 51 rupees) (Additional reporting by Prashant Mehra in MUMBAI and Michelle Martin in LONDON; Editing by Tony Munroe and Aradhana Aravindan)