UPDATE 1-TransAlta sells Mexican assets for $303.5 mln

(Adds details, background. In U.S. dollars unless noted)

CALGARY, Alberta, Oct 8 (Reuters) - TransAlta Corp (TA.TO) said on Wednesday it has closed the $303.5 million sale of two Mexican electricity plants to a power generation firm owned by the Ontario Teachers' Pension Plan and an arm of bailout target American International Group (AIG.N).

TransAlta said it expects to direct C$200 million of the proceeds to pay for a stock buyback program. It will use the rest for general business purposes and for its portfolio of renewable energy projects.

The sale to InterGen was announced in February, and initially expected to close in June. TransAlta, Canada's biggest investor-owned power producer, reassured shareholders earlier this week that the deal was still on track but offered no reason for the delay.

InterGen is buying TransAlta's 252 megawatt facility in Campeche and a 259 megawatt plant in Chihuahua.

Both plants supply power to the Comision Federal de Electricidad under long term contract.

InterGen has 11 power plants worldwide producing 5,791 megawatts of power. It is owned by the Ontario Teachers' Pension Plan, which controls C$108.5 billion in assets, and AIG Highstar Capital II, LP, a leveraged buyout fund sponsored by AIG, the insurer recently bailed out by the U.S. government with an $85 billion loan.

TransAlta shares fell 97 Canadian cents to C$23.83 on the Toronto Stock Exchange. ($1=$1.12 Canadian) (Reporting by Scott Haggett)