U.S. commits further $30 bln to AIG

By Paritosh Bansal and Lilla Zuill

NEW YORK (Reuters) - The U.S. government will commit another $30 billion (21 billion pounds) to prop up American International Group Inc(AIG.N) as the embattled insurer prepares to report the biggest loss in history and struggles to sell assets.

AIG's board on Sunday approved a new rescue package that also includes more lenient terms on an existing government investment in its preferred shares and a lower interest rate on a government credit line, two sources familiar with the matter said.

This would be the third time the government has had to step up to save AIG, once the biggest insurer by market value whose global reach may have made it too big to fail.

The rejigged bailout, which changes the terms of an earlier $150 billion rescue, is also the latest example of how federal regulators are having to revamp aid for top financial institutions as the global financial crisis deepens.

Last week, the government agreed to boost its equity stake in Citigroup Inc (C.N) to as much as 36 percent in a bid to bolster the bank, already the recipient of billions of dollars in taxpayer funds.

"The government really does not have the option of letting AIG totally blow up," said Robert Haines, senior insurance analyst at CreditSights.

"Hopefully, the third bailout will be the charm," he said. "The counterparties on most of the book are (European) banks that would be hammered if the U.S. walked away."

DEBT TO EQUITY