CORRECTED - US STOCKS-AIG loss, oil, drug firms rattle investors

(Corrects 5th paragraph to show Citigroup shedding $400 billion of assets, not saving $400 billion) (Updates to early morning)

By Jennifer Coogan

NEW YORK, May 9 (Reuters) - U.S. stocks fell on Friday after American International Group (AIG.N: Quote, Profile, Research), the world's largest insurer, reported a record $7.8 billion quarterly loss, rekindling concerns about financial services companies.

Oil's price extended its record-breaking streak, rising above $126 a barrel and raising concern about higher inflation and slower economic growth.

Pharmaceutical company shares were a major drag after Mylan Inc (MYL.N: Quote, Profile, Research) reported a wider loss and revenue below analysts' forecasts and Bristol Myers Squibb Co (BMY.N: Quote, Profile, Research) fell on news that a generic version of blood-thinner Plavix may soon be approved in Europe.

AIG had to write down assets linked to subprime mortgages and said it would raise $12.5 billion in new capital to strengthen its balance sheet. For details, see [ID:nN08402912].

Another big financial company, Citigroup Inc (C.N: Quote, Profile, Research), said it intends to shed roughly $400 billion of non-core assets in a bid to become more competitive. [ID:nN08433220].

The Dow Jones industrial average .DJI was down 109.99 points, or 0.85 percent, at 12,756.79. The Standard & Poor's 500 Index .SPX was down 11.17 points, or 0.80 percent, at 1,386.51. The Nasdaq Composite Index .IXIC was down 17.02 points, or 0.69 percent, at 2,434.22.

AIG shares were down 6 percent at $41.52.