Citigroup slides; eyes options including merger

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

* Alwaleed to raise stake to 5 percent

* Bank internally discussing options, including merger

(Adds comment from person familiar with matter, detail on bank's credit derivatives)

By Jonathan Stempel and Dan Wilchins

NEW YORK (Reuters) - Citigroup Inc (C.N) lost more than one-quarter of its market value on growing worries over whether it has enough capital to withstand billions of dollars of potential losses and despite new support from its largest individual investor.

The second-largest U.S. bank by assets is looking at options now, including a sale of parts of the company or a merger with another firm, after its stock fell 50 percent this week, a person familiar with the matter said on Thursday.

Discussions so far have been internal, and some options --such as entering into a merger where other executives end up running the company -- are unpalatable to managers at Citigroup, the person said. The bank's board of directors is set to meet on Friday, and Morgan Stanley (MS.N) is not considering a possible bid, the Wall Street Journal reported.

Citigroup did not comment on the report, repeating that it has a "very strong capital and liquidity position" and is focused on a strategy that will generate benefits "over time." Morgan Stanley did not immediately return a call for comment.