The Treasury, which owns 92 percent of American International Group Inc , is set to eke out a tiny profit as it sells its first batch of shares in the bailed-out insurer.

The 300 million share offering, which includes shares sold by Treasury as well as AIG, priced at $29 and raised $8.7 billion, a source familiar with the situation said on Tuesday.

For Treasury to break even on its investment, it needs to sell its 1.7 billion shares for an average price of $28.72.

The offering, in which Treasury is selling 15 percent of its AIG stake, is important for the U.S. government as it tries to sell off investments it made in multiple companies during the financial crisis.

The AIG share sale is also a key moment for Chief Executive Officer Robert Benmosche. Benmosche, who became AIG's fifth CEO in less than five years in August 2009, halted a plan to break the company up in a fire sale of its parts.

He instead embarked on a revival centered around two core businesses: U.S. life insurer SunAmerica and global property insurer Chartis. Other businesses were sold, taken public or left to operate with a view toward an eventual sale.

AIG was literally minutes from bankruptcy when it was rescued in September 2008. The various iterations of the rescue package ended up being worth $182 billion, dwarfing various other bailouts around the world during the financial crisis.

The question now is how quickly the U.S. government exits its investment and whether it breaks even.

Benmosche has said he expects the government to be out of its AIG position by mid-2012. Fitch Ratings said recently its own models for the company assume the government is out by the end of 2012.

Either way, the terms of the recapitalization deal that closed earlier this year include penalties if the government's investment is not closed out by 2013. Those penalties include the potential for forced asset sales.

The Treasury sold 200 million shares in the offering on Tuesday, with AIG selling an additional 100 million shares.

(Reporting by Clare Baldwin and Ben Berkowitz; Editing by Carol Bishopric, Gary Hill and Tim Dobbyn)