LONDON (Reuters) - The global insurance industry, facing an estimated $70 billion loss from the World Trade Center disaster, is in the grip of conflicting emotions.

There is shock at the scale of the tragedy, which even the most sophisticated risk models could not have predicted.

There is the fear of another devastating attack, which could expose insurers to more - potentially ruinous - losses.

And there is greed, because there are millions of dollars to be made from massive hikes in the price of insurance cover in the wake of the deadly September 11 assault on the United States.

The industry is facing crippling losses in some cases, but it also has the chance to make a lot of money.

"The market is finely balanced between greed and fear," said a chief executive of one UK-based insurance company. "People see the opportunity but also the risks."

Insurers have withdrawn cover to put up prices on insurance, particularly for war and terrorism, which will in future be excluded from policies and sold separately with chunky price tags.

Rising premiums are already sucking in cash into new insurance ventures to capitalise on the buoyant market, but the danger is that too much money could swamp the market and drive prices down again.

"Investors are very short sighted," said David Hudson, insurance analyst at HSBC Securities. "They risk killing the golden goose."

Despite the heavy losses, expectations of rising demand and hardening premiums is already reflected in insurers' share prices, which offer investors a rare bright spot amid the general equity market gloom.

American International Group, the world's largest insurer, has seen its shares recover from their post-attack tumble to be some nine percent above their levels the day before the attacks.

Wholesale insurers Swiss Re and Munich Re shares are up 14 and 16 percent respectively.

Insurance premiums have rocketed since hijacked aircraft destroyed New York's World Trade Center, killing thousands of people. The total insurance bill is expected to be the biggest ever, easily topping the $20 billion loss for Hurricane Andrew in 1992 - the previous most expensive event.

Demand for insurance has risen since September, but supply has tightened as insurers, facing heavy losses, draw in their horns or put up prices.

Premiums were rising anyway before September 11 as the insurance market moved into a long-awaited cyclical upturn. But September's events have accentuated this by driving premiums up by three or four times in some areas.

Speculative cash is already pouring in, as investors try to capitalise on what promises to be a bonanza for the industry.

Rob Jones, a director at credit rating agency Standard & Poors, estimated that some $15 billion has been invested so far by companies, banks and investors.

"Capital is coming from various angles," he said. "Though it does seem to be knowledgable capital this time round."

Jones said that during the last upturn in rates, too much cash was chasing insurance risks. This led to risks being under priced so that premiums fell.

Some of the industry's big names are putting money into new ventures to catch the upswing.

Swiss Re, the world's number two reinsurer, last month raised nearly $3 billion, partly to invest in reinsurance or schemes under which insurance companies offset all or part of their risks with others in the industry.

Bermuda-based White Mountains Insurance Group Ltd has just announced plans to set up a reinsurance firm to take advantage of soaring rates, which will be capitalised at around $1 billion.

Zurich Financial Services this week invested $200 million in a $1.2 billion, another Bermuda-based insurance and reinsurance company being set up by Aon Corp, the world's second largest insurance broker.

The UK's second biggest general insurer, Royal & Sun Alliance, is to cut its dividend and sell off businesses to raise money to back two billion pounds ($2.90 billion) of new insurance premiums over the next year.

Chief Executive Bob Mendelsohn predicted the upturn could last for a while. "The World Trade Center will I think extend the period of time and perhaps the sharpness of the response," he said. "We think the change in outlook for property and casualty (insurance) will run for several years."

But the concern for industry watchers in coming months will be that too much extra cash is being invested to get a share of the insurance market bonanza.

"All it means is that the new capital kills off the rate increases and causes the next plunge in rates," said HSBC's Hudson.