By Christian Plumb and Joseph A. Giannone

are preparing for the possibility that Mitsubishi UFJ Financial Group Inc (MUFG) could seek to renegotiate the terms of a planned $9 billion cash injection into the investment bank, CNBC Television reported on Friday.

Unidentified people at Morgan Stanley, whose shares ended down 22 percent after earlier losing more than double that, also said it was possible that the U.S. Treasury could end up taking a stake in the firm, CNBC reported.

But a source familiar with the situation denied any renegotiation was going on. Morgan Stanley has received all regulatory approvals for the investment by MUFG, which is expected to close on Tuesday, said the source, who asked not to be named.

The source also denied that any discussions had taken place with the Treasury or U.S. Federal Reserve about their taking a stake in the company.

Even if the deal does close, there were some questions whether the MUFG investment would be enough to let the company ride out the current storm.

Morgan Stanley's entire market value now stands at $10.3 billion, about $1 billion more than what MUFG, Japan's largest bank, insists it plans to pay for 21 percent of the company.

"The Mitsubishi transaction hasn't closed yet ... I think there's a legitimate concern that that deal doesn't go through," said Jon Fisher, a portfolio manager at Fifth Third Asset Management in Minneapolis. "Once (the Moody's announcement) hit last night, people jumped to the Lehman Brothers parallel."

WAITING GAME

Moody's warned on Friday it might cut the long-term debt ratings of Morgan Stanley and larger rival Goldman Sachs Group Inc, which would increase their cost of borrowing.

Morgan Stanley, whose shares have lost about 70 percent in the past week and are near their lowest in nearly 14 years, declined to comment on the movement in its stock and debt, or on speculation about the MUFG deal.

The 73-year-old firm, which became the fifth-largest U.S. bank after its recent conversion to a bank holding company, has little choice but to wait for Tuesday, when it could complete its $9 billion sale of stock and convertible preferred shares to Mitsubishi. The deal could be completed before U.S. markets open on Tuesday.

People inside the bank say there was no effort under way to accelerate the waiting period for the Mitsubishi deal.

MUFG has affirmed it expects to close the deal on Tuesday at the same terms, even though it would immediately absorb about a $2 billion paper loss on the stock, based on current prices.

Shares in Goldman, which declined to comment on the Moody's move, were down 12 percent. The Amex Securities Broker-Dealer Index rose 3 percent.

(Additional reporting by Sachi Izumi, Jennifer Ablan, Tony Munroe, Dan Wilchins, Juan Lagorio, Paritosh Bansal and Elinor Comlay and Kristina Cooke, and David Dolan in Tokyo; editing by Steve Orlofsky and Gerald E. McCormick)