UPDATE 1-More aid for AIG cheaper than collapse-source

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WASHINGTON, March 1 (Reuters) - Pumping $30 billion more of U.S. taxpayer funds into embattled insurance giant American International Group Inc. (AIG.N) is ultimately cheaper than letting it collapse and endanger the broader economy, a person familiar with the matter said on Sunday night.

The U.S. government will announce the latest cash infusion for AIG on Monday morning, along with a series of other measures that are designed to better position it to sell some assets and try to find a route toward long-term viability.

The source, who spoke on condition of anonymity, said AIG posed a significant systemic risk for the U.S. financial system and as long as that was the case there might be a need for continued government aid.

AIG is expected to announce a fourth-quarter loss of about $60 billion early on Monday, and a new rescue package for the company will be rolled out at the same time that includes new money from the U.S. Treasury.

AIG also is expected to give the Federal Reserve a preferred-stock interest in its American Life Insurance Co (Alico), which generates more than half of its revenue from Japan, and Hong Kong-based life insurance group American International Assurance Co (AIA) in return for reducing its debt.

The source said that the decision to help AIG for a third time since late last year was made in light of the continuing deterioration in U.S. economic conditions since that time.

Allowing AIG to collapse would have sent shockwaves through the retail insurance sector as well as posing a systemic risk to the economy that U.S. authorities decided could not be allowed to happen, the source said.

(Reporting by Glenn Somerville; Editing by Tomasz Janowski)