Citigroup shares tumble despite Alwaleed move

* Shares fall to 1994 level, cost to insure debt rises

* Alwaleed to raise stake to 5 percent

* Citigroup said among final bidders for Chevy Chase Bank

(Adds comments on bank's business, government aid)

By Jonathan Stempel and Dan Wilchins

NEW YORK (Reuters) - Citigroup Inc (C.N) lost more than one-quarter of its market value as new support from its largest individual investor failed to ease worries over whether it will have enough capital to withstand billions of dollars of potential losses.

Saudi Prince Alwaleed bin Talal said he plans to increase his stake in Citigroup, the No. 2 U.S. bank by assets, to 5 percent from less than 4 percent, calling its shares "dramatically undervalued."

Alwaleed expressed "full and complete support" for bank management, including Chief Executive Vikram Pandit, who said this week the bank will slash 52,000 jobs and 20 percent of expenses.

Investors drove the bank's shares down below $5 on Thursday, a level not seen since 1994. Some investors and analysts questioned whether Citigroup would be able to handle billions of dollars in potential credit losses and writedowns in 2009 as the world economy sinks into recession.

Some investors have said the government might have to step in, perhaps augmenting the $25 billion it injected last month as part of a $700 billion rescue package.

Citigroup is not seeking any government financial aid, a person close to the bank said, adding that the bank was not seeing any unusual business activity.

Citigroup could face more than $20 billion in losses in 2009 on commercial real estate, credit cards and emerging markets, analysts said.

"How much capital is Citi going to need?" said Keith Davis, a bank analyst at Farr, Miller & Washington in Washington, D.C. "I don't think anyone knows, and so the knee-jerk reaction is to sell first and ask questions later."

Citigroup shares closed down $1.69, or 26.4 percent, at $4.71, with volume topping 721 million shares. The stock is down 50.5 percent this week.

A Citigroup spokeswoman declined to comment on the share price.

JPMorgan Chase & Co (JPM.N) closed off 17.9 percent, and Bank of America Corp (BAC.N) down 13.9 percent. Along with Citigroup, the banks are components of the Dow Jones industrial average .DJI, which shed 5.6 percent.