The U.S. government may agree to finance some buyers of American International Group Inc businesses, take stakes in assets and ease terms of its aid to the insurer, a person familiar with the matter said on Thursday.

These are some of a wide range of options under discussion between the government, the insurer and credit rating agencies, as AIG looks to avoid a credit downgrade that would trigger a host of liquidity issues and hurt its business, the source said.

Other options that are being discussed include changing the terms of a $40 billion preferred stock investment with a 10 percent coupon, the source said. New terms could include reducing or even eliminating the dividend on that.

The sides are also looking at the possibility of lowering the interest rate on the government's credit line to AIG, and swapping debt for equity for some businesses, the source added.

AIG, once the world's largest insurer by market value, may also get an additional equity commitment of several billion dollars from the government, which could come as an expanded credit line, the source said.

The talks come as AIG expects to post a record $60 billion quarterly loss -- that's about $460,000 a minute.

A ratings downgrade could have serious ramifications on the insurer's liquidity and hurt businesses. Customers could cancel their insurance policies if a minimum rating is no longer satisfied.

AIG was first rescued in September after bad mortgage bets left it on the verge of collapse. The government stepped in with $85 billion in bailout financing, as the credit crisis peaked with Lehman Brothers Holdings Inc filing for bankruptcy and Merrill Lynch agreeing to be bought by Bank of America Corp .

The government subsequently offered additional financing, bringing the support up to $123 billion.

And in November, the government had to revise its bailout package, raising its aid further, to about $150 billion.

AIG plans to sell all assets except its U.S. property and casualty business, foreign general insurance and an ownership interest in some foreign life operations, as it looks to pay back the government.

While the company has announced some sales, it has been difficult to find buyers and get a good price for assets amid the financial crisis.

Credit for deals remains difficult to arrange due to the crisis and as many would-be buyers struggle with their own problems.

AIG's shares were up 4 cents, or 8.7 percent, at 50 cents during late trading on the New York Stock Exchange.

(Reporting by Paritosh Bansal; editing by Jeffrey Benkoe)

Merrill Lynch Aig