UPDATE 1-AIG shares tumble after 1-for-20 reverse split

* Stock falls for second straight day

* Shares down nearly 20 percent (Adds analyst comment, background)

NEW YORK, July 1 (Reuters) - American International Group Inc (AIG.N) shares tumbled nearly 20 percent on Wednesday following a 1-for-20 reverse stock split by the troubled insurer.

The shares were down $4.53, or 19.5 percent, to $18.67 in early-afternoon trade on the New York Stock Exchange.

The reverse split was approved at the AIG annual meeting on Tuesday. The shares closed at a pre-split $1.16 on Tuesday.

Donald Light, an analyst with Celent in San Francisco, said, "It looks like AIG was trying to seek some kind of psychological advantage, but what they were hoping for did not occur."

Investors who had adjusted to the stock trading for "a dollar and change" might be thrown by the seemingly higher valuation and push it down, he added.

Before the split, the shares had traded below $2 for much of the year, weighed down by the company's nearly $100 billion in losses last year and a taxpayer bailout that left the U.S. government owning a nearly 80 percent stake in the company.

The shares also fell sharply on Tuesday after Chief Executive Ed Liddy said at the annual meeting that he could not give any assurance that the shares would ever recover or that the U.S. government would ever relinquish its majority ownership of the company.

AIG disclosed its plans for the reverse stock split in a regulatory filing on May 21, but the news was overshadowed by an announcement that same day that Liddy planned to step down as CEO and chairman once successors were found. (Reporting by Lilla Zuill; editing by John Wallace)