U.S. government increases AIG bailout to $150 bln

By Mark Felsenthal and Lilla Zuill

WASHINGTON/NEW YORK (Reuters) - The U.S. government dramatically boosted its bailout of insurer American International Group Inc and eased the terms of its loans to the company on Monday after an initial rescue plan failed to stabilize the company.

Under the new plan, the U.S. Treasury will take a $40 billion equity stake in AIG as part of a package of credits to prevent the collapse of what it called a "systemically important company." The Federal Reserve is providing up to $112.5 billion in loans and funds for asset purchases.

The new package, the largest bailout of a single company, provides AIG with about $27 billion more than previously extended and will leave the government exposed to billions of dollars of additional potential losses.

"This is a one-off, created solely for AIG," a U.S. Treasury official said of the transaction hammered out over the weekend.

"This wasn't done to help AIG shareholders. It gives the company the room it needs in its capital structure to execute its asset disposition plan," the official told reporters in a background briefing.

AIG shares rose 29 percent to $2.72 in early trade after the new rescue plan was disclosed.

MASSIVE LOSSES