NEW YORK (Bloomberg) - American International Group Inc. (AIG), recipient of a $182.3 billion taxpayer-funded rescue, gained the most in the Standard & Poor's 500 Index after the government removed caps on aid to Freddie Mac and Fannie Mae.

The US Treasury Department said on December 24 it would provide assistance to the two mortgage financers as needed for the next three years, after giving the companies a combined $400 billion lifeline. New York-based AIG's rescue helped the insurer survive losses related to the sub-prime mortgage crisis.

"The assumption is that with the government owning effectively 80 percent of AIG, they will do the same thing and they will backstop everything in AIG's book," said Malcolm Polley, chief investment officer at Stewart Capital Advisors LLC in Indiana, Pennsylvania, which oversees about $1 billion. "A lot of people are grasping at straws trying to find a way they can justify having paid what they paid for AIG if they bought it recently or continuing to own AIG if they never sold it."

AIG rose $1.88, or 6.2 percent, to $32 at 12.38 p.m. in New York Stock Exchange composite trading. Earlier yesterday it hit $32.80, the insurer's highest price this month. Freddie Mac climbed 26 cents, or 20 percent, to $1.52 and Fannie Mae rose 18 cents, or 17 percent, to $1.23.

"If AIG holds a lot of Freddie and Fannie paper, this could end up helping their assets as well," said Jud Pyle, a market analyst at Chicago-based options trading firm PEAK6 Investments LP. "I still wouldn't put my money in AIG. There are better places to put it, but this could cause people who are short it to think twice." A short position is a bet the stock will decline. Mark Herr, a spokesman for the insurer, did not immediately return a call seeking comment.

AIG has reported two straight quarterly profits after bad bets on sub-prime mortgages contributed to more than $100 billion in net losses in the 18 months ended March 31. The insurer's stock traded at more than $1,400 a share at the end of 2006.

The insurer's $182.3 billion rescue includes a $60 billion Federal Reserve credit line, a Treasury Department investment of as much as $69.8 billion, and up to $52.5 billion to buy mortgage-linked assets owned or backed by the company. AIG agreed to turn over a stake of almost 80 percent in connection with its September, 2008 bailout.