WASHINGTON (Reuters) - The Treasury Department on Monday lowered its estimate of the ultimate cost of its financial rescue fund to $55.48 billion from $59.68 billion, reflecting a better-than-expected return on its bailout of General Motors.

The latest tally means that about 93 percent of the $418 billion in funds already disbursed to date from the $700 billion Troubled Asset Relief Program, or TARP, have been recovered.

TARP, unveiled during the 2007-2009 financial crisis, created programs to help stem foreclosures, revive consumer and business lending, and rescue U.S. auto makers. The latest downward revision on TARP's cost was due in part to money it raised from stock sales of the remaining shares of General Motors it owned.

In December, Treasury announced a two-step plan to sell its stake in GM over the coming year, a process that includes a $5.5 billion stock sale to GM as part of a broader push to wind down the financial bailout.

In its estimate, the Treasury projects that the auto industry bailout cost was reduced by $4 billion, or 16 percent, to $20.3 billion from a previously projected $24.3 billion.

The Treasury also said it held auctions in January for its outstanding preferred stock and subordinated debt in 11 financial institutions to wind down TARP investments that benefited many banks during the financial crisis.

But seven of those banks did not make the obligated payments due under the TARP terms, which led to steep discounts on the auctioned holdings.

As a result, the Treasury received less in the way of proceeds from the sale of the preferred stock and debt. It said it would receive $191.3 million in proceeds from those auctions, compared with an original $285.3 million TARP investment.

So far, the government has recouped about $268 billion from its bank bailout initiative through repayments, dividends, interest, and other income, the Treasury said, compared to the $245 billion invested in those institutions.

(Reporting By Margaret Chadbourn, editing by James Dalgleish and Carol Bishopric)