Shares in bailed-out insurer American International Group Inc hit their highest level since early October 2008 on Friday after the company took a major step toward closing its recapitalization.

AIG said Thursday night its board had approved the issue of warrants to buy 75 million shares of common stock, which are conditioned on all the parties to the recapitalization agreeing it can close by January 14.

While that does not in itself guarantee the deal will close next week, it was one of the last key steps to finish the transaction.

Under the terms of the deal, the Federal Reserve Bank of New York will be repaid in full and the U.S. Treasury Department will be left with a 92.1 percent stake in AIG.

The government plans two large stock offerings this year to sell most of that stake, officials told Reuters late last year. The rest would be sold in 2012.

AIG shares rose 3.1 percent to $62.35 in early trade. Through Thursday's close the shares were up 34 percent since the September 30 announcement of the recapitalization.

(Reporting by Ben Berkowitz; Editing by Derek Caney)

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