UPDATE 3-AIG says regulators probing mortgage contracts

(Adds analyst comment, pargraphs 10-12)

By Lilla Zuill

NEW YORK, June 6 (Reuters) - American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz) said on Friday that the U.S. Securities and Exchange Commission and Department of Justice were investigating whether it overstated the value of contracts linked to subprime mortgages.

"AIG has received inquiries from the SEC and the DOJ regarding the evaluation of AIG Financial Products credit default swaps portfolio," spokesman Chris Winans said.

"While we cannot say where the inquiry will lead, we can say it is not unusual to receive such questions following the kind of volatility that AIG Financial Products and the rest of the credit markets have experienced," Winans added.

Over the last two quarters, the world's largest insurer has posted record losses stemming from more than $20 billion in write-downs on the credit default swap (CDS) investments held by its financial products unit, sending shares in the world's largest insurer down sharply.

AIG shares fell $2.48, or 6.8 percent, to close at $33.93 on the New York Stock Exchange, after touching an 11-year low of $33.65. The stock has been more than halved over the last year.

Credit protection costs have risen for AIG in recent months as losses mounted from mortgage-related investments.

"Amid the credit market uncertainty, we have consistently and promptly provided our best estimates of our CDS portfolio valuations and potential exposures," said Winans.