( AIG and other closing stock prices reflected in this update.) NEW YORK ( TheStreet) -- American International Group ( AIG) was among the top performers of the financial sector Wednesday, continuing a recent surge that was attributed to a massive short-squeeze. AIG's two-day rally came as 91.5% of AIG stock available for shorting has been borrowed, while the rate to borrow shares jumped from the mid-teens to 40%, according to CNBC. On Tuesday, the short interest on AIG's stock hit a 52-week high with 30.33 million shares sold short out of a total 135 million shares, a CNBC commentator added.
On Tuesday, rumors circulated that U.S. regulators were considering a ban on short selling any stock with government interest. "There is no truth to the rumor that we are considering restricting the short selling of stocks in which the government has a stake," Securities and Exchange Commission spokesman John Nester told Reuters late Tuesday. AIG shares surged by $3.47, or 10.6%, to $36.24, bring the two-day rally to 24.5%. Government-sponsored entities Fannie Mae ( FNM) and Freddie Mac ( FRE), which were among the other big winners Tuesday, were 2.8% and 2.3%, respectively. Among U.S. bank stocks, Bank of America ( BAC) was higher as the bank said it will eliminate overdraft fees on purchases made with debit cards. Customers, however, will be denied from making purchases if they have insufficient funds in their accounts. Bank of America's new policy begins for new customers on June 19. For existing debit-card holders the plans take effect in August. Shares of the bank rose 1.9% to $17.11. Citigroup ( C) also traded higher on a Bloomberg report the bank will sell its Citi Property Investors unit to private-equity group Apollo Management. A deal would give Apollo 65 real estate investments in 26 countries with a net asset value of $3.5 billion, according to a Bloomberg report. The purchase may take as long as three months to close, a person with knowledge of the deal told Bloomberg. Meanwhile, Rochdale Securities analyst Dick Bove said during an interview with CNBC Wednesday that Citigroup's stock will likely keep climbing. ""If one was able to separate out the business that they're going to sell at the moment...the part that's going to survive has got a 65 cents to 70 cents earnings power, which I think is a $7 stock," Bove said, according to a transcript of the interview. "But you have to go through the sale of the government stock before, I think, it starts to move up even more seriously."
CNBC also reported that Citigroup will be pricing its preferred stock offering, $25 par, at a yield of 8.875%. A trader told CNBC that the offering was was "multiple times oversubscribed." Citigroup shares, which jumped 7.3% Tuesday, were up another 3.7% to $3.96. Among other U.S. bank stocks, Morgan Stanley ( MS) added 3.2% to $29.97, Wells Fargo ( WFC) advanced 2% to $29.57, Goldman Sachs ( GS) rose 1.8% to $171.94, and JPMorgan Chase ( JPM) gained 1.2% to $42.93. -- Written by Robert Holmes in Boston. Follow Robert Holmes on Twitter and become a fan of TheStreet.com on Facebook.