AIG rescue to ease liquidity concerns: Japan FSA

TOKYO (Reuters) - Global liquidity concerns will significantly ease after the U.S. government's decision to rescue insurer American International Group, Japan's financial services minister said on Wednesday.

However, Toshimitsu Motegi also said that tension remains in global financial markets and caution needs to be maintained.

"There have been rising liquidity concerns in the markets. The decision (by the U.S.) will significantly improve the liquidity squeeze, and our country welcomes that decision," Motegi told reporters.

"But there remains tension in international financial markets, so authorities in each country will need to further cooperate," he said.

Motegi also said that the fundamental problem stemming from the subprime loan sector has not been resolved and the state of the U.S. housing market remains severe.

He added that the Japanese government would continue to cautiously observe how these factors will affect Japan's real economy through financial markets.

The U.S. government agreed to rescue insurer AIG with an emergency $85 billion loan from the New York Federal Reserve to stave off a bankruptcy that would have thrown world financial markets into even deeper turmoil.

But the rescue failed to immediately soothe frayed nerves and ease the funding squeeze, and Japan, Australia and India pumped $33 billion into money markets on Wednesday to improve liquidity.

(Reporting by Kaori Kaneko and Reiji Murai, editing by Sophie Hardach)