NEW YORK (Bloomberg)—American International Group Inc. rose in New York trading on speculation the Treasury Department may lower its stake in the bailed-out insurer.

AIG advanced $1.05, or 2.8%, to $39.19 in New York Stock Exchange composite trading at 9:35 a.m. Treasury officials are discussing ways to extricate the U.S. from its stake of almost 80% in AIG, the Wall Street Journal reported Monday, citing unidentified people familiar with the situation.

Chief Executive Officer Robert Benmosche has secured deals to sell two life insurance divisions for about $51 billion by year-end to repay loans within the firm's $182.3 billion government bailout. Mr. Benmosche said in an April 1 interview that the sales meant that AIG managers were “well on our way” to repaying a Federal Reserve credit line and that the next goal is to repay more than $40 billion in Treasury assistance.

“We've got to begin to look at what are the alternatives we have to raise sufficient money so that we can pay back” Treasury, Mr. Benmosche, 65, said in the telephone interview. “Let's get 2010 done, get the transactions done, decide what we need to sell in terms of the securities we are taking on and then we get to discuss what is the best way for Treasury to be paid back in full.”

Treasury officials are considering converting its preferred stake in New York-based AIG into common shares that would be sold to other investors, similar to its strategy for Citigroup Inc., according to the Journal. Mark Herr, a spokesman for AIG, declined to comment. Meg Reilly of the Treasury Department didn't immediately return a message.

Life insurance

Mr. Benmosche, who has told employees he would only sell assets at fair prices, announced last month deals to sell AIA Group Ltd. to Prudential P.L.C. for $35.5 billion and American Life Insurance Co. to MetLife Inc. for $15.5 billion.

AIG needed a U.S. rescue in September 2008 after soured derivative bets tied to housing markets drained cash. The company's government assistance includes a $60 billion Federal Reserve credit line, up to $52.5 billion to buy mortgage-backed securities owned or backed by the insurer, and a Treasury investment of as much as $69.8 billion.

&Copy;2010 Bloomberg News