US insurance giant AIG started serious discussions with American General yesterday, in a move that brings its $23 billion (€29 billion) offer for the life insurer a step closer to completion.

The discussions started after American General's board concluded on Monday night that AIG's offer, which values each American General share at $46, could be more attractive than the competing offer from Prudential, the UK insurer.

It is understood that AIG wants a speedy completion to the negotiations.

Meanwhile, a judge in Houston, Texas, yesterday rejected Prudential's attempts to seek a temporary restraining order against AIG. But the judge convened a hearing for next Tuesday which will consider whether to issue a temporary injunction against AIG.

Prudential claims in its lawsuit that AIG has "tortuously interfered" with its prospective merger and existing merger contract with American General.

Specifically, it alleges that AIG has violated the US Securities Act by publicly offering its shares. The act prohibits offers without the prior filing of a registration statement.

Prudential alleges that AIG has not filed its press release or transcripts of its discussions with analysts with the Securities and Exchange Commission.

Observers said yesterday the lawsuit was unlikely to block AIG's offer, but could act as a drag on the completion of the deal.

Prudential's deal was originally worth more than AIG's proposal, but a slide in the UK group's share price played a strong part in prompting the proposal from Mr Maurice "Hank" Greenberg, AIG chairman.

American General issued a carefully worded statement to show that its board was abiding by its fiduciary duty to shareholders and not breaching the terms of its agreement with Prudential. Under the agreement, the Texas-based insurer is not allowed to hold acquisition talks with a third party unless the other group's offer is superior.