(AIG and other stock prices brought current in this update.)

NEW YORK (

TheStreet

) --

American International Group

(AIG) - Get Report

was among several winners of the financial sector Tuesday after a top mutual fund manager increased his stake in the insurer.

AIG

shares rose after

Fairholme Capital Management

, a mutual fund headed by

Bruce Berkowitz

, disclosed in a regulatory filing late Monday that it owns more than 32.79 million shares of the insurer, or 24.3% of AIG's outstanding stock. That's up from an 18.9% stake the fund reported in May.

Separately,

Reuters

reports that AIG's board of directors will meet on Wednesday to mull the future of its AIA unit, which was to be sold to the U.K.'s

Prudential PLC

(PUK) - Get Report

before the $35 billion deal fell apart. Sources told

Reuters

that an initial public offering of the Asian insurance is the most likely outcome.

Shares of AIG are trading higher by $2.05, or 5.8%, to $37.62.

Similarly,

MBIA shares

rose after

Berkowitz's Fairholme

disclosed a stake of more than 22.73 million shares of the bond insurer, or 11.1% of MBIA's outstanding stock.

Shares of MBIA jumped by 66 cents, or 10.3%, to $7.09. Fellow bond insurer

Ambac Financial

( ABK), which received a

delisting warning

from the

New York Stock Exchange

last week, was up 6.8% to 69.7 cents.

Elsewhere, major U.S. bank stocks were climbing Tuesday, with

Citigroup

(C) - Get Report

leading the charge with a 3.7% gain. On Tuesday, Citigroup said it well its private equity fund of funds and co-investment businesses as part of the bank's strategy to reduce noncore businesses. Private equity firms StepStone Group and Lexington Partners are set to manage the businesses, Citigroup said.

Citigroup shares climbed 3.7% to $4.27. Among other winning U.S. bank stocks,

Morgan Stanley

(MS) - Get Report

advanced 3.8% to $25.50,

JPMorgan Chase

(JPM) - Get Report

rose 2.7% to $40.26,

Goldman Sachs

(GS) - Get Report

gained 2.3% to $140.39,

Wells Fargo

(WFC) - Get Report

was up 2.3% to $27.69, and

Bank of America

(BAC) - Get Report

added 2.2% to $15.55.

The advance in U.S. bank stocks came a day after

three Republicans announced plans to back the financial reform bill

.

Sen. Scott Brown (R., Mass.) and Sen. Olympia Snowe (R., Maine) said they will join fellow Republican Senator Susan Collins in supporting the revised financial reform legislation. Brown said Monday that he would now support the bill after the $19 billion bank tax had been removed from the reconciled bill. Senate Majority Leader Harry Reid (D., Nev.) said the legislation would be wrapped up this week,

The Associated Press

reports.

Flagstar Bancorp

(FBC) - Get Report

was another top performer of the financial sector Tuesday after the bank said late Monday it has regained compliance with the

New York Stock Exchange's

minimum bid price requirement, a listing rule that says a stock must maintain a closing price of $1 or higher for 30 consecutive trading sessions.

Flagstar Bancorp shares were surging by 32 cents, or 10.2%, to $3.46.

Mortgage insurance stocks were also on the rise, with

The PMI Group

( PMI) rallying 9.1% to $3.37,

Radian Group

(RDN) - Get Report

rising 5.5% to $8.51, and

MGIC Investment

(MTG) - Get Report

up 2.5% to $8.06.

-- Written by Robert Holmes in Boston

.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.