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AIG -- yes, that AIG -- is flying Add to ...

American International Group Inc. was the brunt of jokes not long ago as its shares seemed headed toward zero. Not on Wednesday: The shares surged more than 56 per cent in afternoon trading.

According to Bloomberg News, the liftoff could be due to a combination of earnings expectations and short-covering, as those investors who bet that the stock would fall now busily buy the shares to close the trade.

More specifically, Radian Group Inc. - which provides financial guarantee insurance, putting it in the same sector as AIG - reported a surprise profit and lower provisions for mortgage defaults in its second quarter results, released on Wednesday. The shares rose 65 per cent.

"The only thing I've seen is Radian," said Donna Van Vlack, head trader at Brandywine Global Investment Management, in an interview with Bloomberg. "It's the same line of business. Sentiment is helping the whole group."

AIG reports its quarterly results on Friday. The company is now controlled by the U.S. government after it floundered during the financial crisis. It has reported six consecutive quarters of losses, required $182.5-billion (U.S.) in government bailout funds and conducted a one for 20 stock consolidation in early July to boost the nominal value of its shares.

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