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.  Continued...