(

Updated with final stock price moves

.)

NEW YORK (

TheStreet

) --

American International Group

(AIG) - Get Report

was among the losers of the financial sector Tuesday, ending a two-day rally that had seen the insurer's stock rise more than 30%.

AIG shares retraced gains late in the day and finished lower by $2.60, or 5.4%, at $45.80 after

Jim Cramer

wrote on

RealMoney

that the company should consider a secondary offering, stoking market chatter. AIG declined to comment on the rumors, according to

CNBC

.

AIG

shares surged after a report released Monday by the Government Accountability Office, which oversees the Troubled Asset Relief Program, said there are "signs of stabilizing" and "some progress" even as the ultimate success of AIG's restructuring and repayment efforts remains uncertain.

Separately, House Oversight Committee Chairman Rep. Edolphus Towns (D., N.Y.) is looking into former AIG Chairman and CEO Hank Greenberg's restructuring proposal that would slash the federal government's stake in the insurer from 80% percent to 20%, according to a

Bloomberg

report.

Meanwhile,

Bank of America

(BAC) - Get Report

was among the winners after the bank exited a loss-sharing deal with the government, even as a trial with the

Securities and Exchange Commission

loomed.

BofA paid $425 million to the Treasury Department to exit an arrangement where losses on $118 billion in risky assets mostly associated with Merrill Lynch were protected by public funds. Previously, BofA had contested the idea of making any payment at all, arguing that it had not signed the papers accepting the government backstop.

Rochdale Securities analyst Dick Bove said the payment, along with the bank's other recent moves, suggests that the company is regaining its financial credibility. Bove raised his stock price target to $25 from $19 to reflect the bank's strengthened financial condition.

Bove said other positive steps BofA has taken include reaching an agreement with the Federal Deposit Insurance Corporation that it no longer needs to be part of the Temporary Liquidity Guarantee Program, a reduction in its borrowings under the Term Auction Facility, and its addition of $40 billion in Tier One Capital to its balance sheet, in part through the sale of $15.5 billion in common stock, $10.9 billion in preferred securities, and $10 billion in non-government backed debt.

Meanwhile, the Securities and Exchange Commission is set to take BofA to court for the company's failure to disclose bonuses paid to Merrill employees before the acquisition was finalized. The agency's decision comes after federal U.S. Judge Jed Rakoff rejected a $33 million settlement between the bank and the SEC.

The news comes even as BofA executive Anne Finucane is set to meet Tuesday with Rep. Towns after the bank did not provide the information sought by a Congressional probe into its Merrill Lynch deal by a deadline on Monday.

Amid the flurry of headlines, BofA shares rose 36 cents, or 2.1%, to $17.61.

Citigroup

(C) - Get Report

was also among the winners, rising 5%, despite news that the Government of Singapore Investment Corporation halved its 9% stake in the bank, pocketing a profit of $1.6 billion. The GIC stressed that it is "confident" in the long-term prospects of Citigroup, and that a stake of below 5% reflects its goal to be a portfolio investor.

Citigroup shares advanced 22 cents to close at $4.65.

Among other bank stocks,

Morgan Stanley

(MS) - Get Report

finished up 4.3% to $32.98,

JPMorgan Chase

(JPM) - Get Report

rose 4.3% to $46.47 ,

Wells Fargo

(WFC) - Get Report

added 3.9% to $29.39 and

Goldman Sachs

(GS) - Get Report

tacked on 1.7% to end the day at $185.52.

Blackstone Group

(BX) - Get Report

was also trading higher after the firm and Lion Capital received a binding 2.6-billion-euro agreement from Japanese drink company

Suntory

to buy French soft drink company Orangina Schwepps. Blackstone shares closed up 21 cents, or 1.5%, to $14.66.

In other bank-related news,

The New York Times

reported that senior regulators are considering a plan to have the healthiest U.S. banks lend billions of dollars to shore up the deposit insurance fund, which is running out of money due to a wave of bank failures. The Federal Deposit Insurance Corp., which oversees the fund, is reluctant to use its authority to borrow from the Treasury, the report said.

The plan, strongly supported by bankers and their lobbyists, would be a major reversal of fortune, the

Times

points out, after billions of taxpayer dollars were used to prop up large and small banks over the last year.

-- Written by Robert Holmes in New York

.