UPDATE 4-GM tells judge that asset sale is its "only option"

* GM seeks court approval for sale

* Government will not extend funding past July 10

* Government sees GM IPO in 2010 (Adds GM lawyer comments, further arguments for Thursday)

By Emily Chasan and Phil Wahba

NEW YORK, July 1 (Reuters) - General Motors Corp GMGMQ.PK has no choice but to sell its assets to a group led by the U.S. government if it is to survive, a lawyer for the bankrupt carmaker argued in bankruptcy court in Manhattan on Wednesday

"There is no alternative; it is liquidation or this sale. And liquidation is Draconian," GM's lawyer Harvey Miller told U.S. Bankruptcy Judge Robert Gerber.

Saying that no one else had come forward with another offer to compete with the U.S. Treasury's and that no other entity could provide GM with as much bankruptcy financing, Miller urged Gerber to approve the sale.

"The current transaction is the only option on the table," argued Miller, of the law firm Weil Gotshal & Manges.

Harry Wilson, a U.S. Treasury official working on GM's restructuring, seconded Miller's claim that the sale was GM's only option.

Wilson said the government would withdraw its portion of the $33 billion "debtor-in-possession" financing for GM if the sale does not close by July 10.

"We cannot make an open-ended commitment," Wilson testified. "At one point, it's better to cut one's losses."

He testified that last December the federal government was "effectively the lender of last resort" for GM, and estimated the automaker has received $10 billion in funding since its bankruptcy filing -- the bulk of it from the U.S. government.

Wilson said the government wants GM to stay in bankruptcy for only 30 to 40 days.

If the deal is approved, the "New GM" would be a company that would have the best parts of the old company, a less expensive workforce and much less debt.

The "old GM," which would include unpopular brands and unneeded factories, would be sold off to the highest bidder.

The U.S. Treasury would provide $60 billion in financing to the new company, including a proposed $50 billion that would give the U.S. Treasury a 60 percent stake in the company.