Ambac shares sink as warns of possible bankruptcy

NEW YORK (Reuters) - Shares of bond insurer Ambac Financial Group Inc sank more than 36 percent on Tuesday after the company warned it may be forced to seek bankruptcy protection if it cannot fix its liquidity problems.

"Ambac's available liquidity is currently insufficient to fund its needs beyond the near term and its failure to successfully execute on its current strategies could result in it running out of liquidity in the second quarter of 2011, or potentially sooner," the company said in a regulatory filing with the U.S. Securities and Exchange Commission late Monday.

Ambac said it may pursue strategies including "a negotiated restructuring of its debt through a prepackaged bankruptcy proceeding" as it tries to deal with its liquidity issues.

Ambac, like its larger rival MBIA Inc, has struggled to write new business since losing its top-notch credit rating last year. The company is still battling losses on complex debt securities it insured.

Shares hit a low of 75 cents earlier and were down more than 31 percent, or 37 cents, at 81 cents on the New York Stock Exchange on Tuesday afternoon.

(Reporting by Emily Chasan; Editing Bernard Orr)