UPDATE 1-AIG may sell U.S. auto unit to Zurich - source
* Unit may fetch roughly $1.5 bln - source
* Announcement could come shortly - source
* Deal not yet finalized, could still fall apart - source (Adds background, byline)
NEW YORK, April 15 (Reuters) - American International Group Inc (AIG.N) is close to a deal to sell its U.S. auto insurance business to Swiss insurer Zurich Financial Services (ZURN.VX) for roughly $1.5 billion, a source familiar with the matter said on Wednesday.
A deal could be announced soon, the source said, but added that it had not been finalized and things could still fall apart.
If a sale does happen, it would be the largest for the insurer since its rescue by the U.S. government in September.
The unit being sold includes the 21st Century Insurance business, which AIG took over in 2007 when it bought out the minority stakeholders.
The auto insurance business is part of AIG's U.S. personal lines unit, which also includes selling products to high net-worth individuals through its AIG Private Client division. AIG Chief Executive Edward Liddy has previously said that the private client division is not being sold.
U.S. taxpayers have taken a roughly 80 percent stake in AIG, once the world's largest insurer, in exchange for providing up to $180 billion in financial support.
The company is trying to sell off assets in a bid to pay back the government, but it has struggled to find buyers for big-ticket items.
Last week Liddy said AIG had reached agreements to sell 10 businesses, "despite the most challenging market environment in memory."
These include the sale of HSB Group to German reinsurer Munich Re (MUVGn.DE) for $742 million and its Canadian life insurance unit to Bank of Montreal (BMO.TO) for about C$375 million.
AIG and Zurich declined to comment. (Reporting by Paritosh Bansal, Editing by Ian Geoghegan) (For more M&A news and our DealZone blog, go to www.reuters.com/deals)
