HONG KONG - HONG Kong police said Friday they have arrested 11 people in connection with a forged letter that claimed troubled US insurance giant American International Group Inc was selling its Asian subsidiary.

The letter, which was printed on company letterhead and claimed to be from the customer service department, surfaced Wednesday when local subsidiary AIA Hong Kong notified police and issued a statement calling it 'totally fraudulent' and having 'no basis in fact'.

AIA said some customers received the letter but it didn't know exactly how many.

Security chief Ambrose Lee said two men were arrested on Thursday for involvement in the case, while superintendent Ho Ying-foo said officers arrested nine more people on Friday.

The 11 people, aged between 34 and 62, worked in the insurance industry and were being detained for investigation, Ho said. No charges have been filed.

'We have reasons to believe that some forged documents have been used,' Mr Ho told reporters.

AIG, the world's largest insurer, escaped bankruptcy last week following a pledge by the US Federal Reserve to offer a two-year, US$85 billion (S$121 billion) loan to prop up the company. But thousands of nervous policyholders in Hong Kong and Singapore still chose to cash their policies out.

Since the global financial crisis erupted last year, investors have been sensitive to any negative rumors about financial institutions.

On Wednesday and Thursday, hundreds of customers swarmed mid-sized lender Bank of East Asia offices in Hong Kong and Singapore after an unconfirmed rumor questioned the bank's stability. -- AP