NEW YORK (Bloomberg) - American International Group Inc. (AIG), the insurer bailed out by the US, gained for a ninth day, reaching a 10-month high as speculators bought back shares they borrowed and sold short, traders said.

AIG climbed $2.39, or five percent, to $50.23 at 4.15 p.m. in New York Stock Exchange composite trading on Friday after earlier rising as much as 17 percent. In a short sale, investors sell borrowed securities and agree to buy and return them to the shareholder later, profiting from any drop in the stock.

"It's a short squeeze of an unprecedented fashion," said Robert Bolton, managing director for trading at Mendon Capital Advisors Corp. "If it goes up enough in their face, then they have to make a decision to cut their losses. This is all fueling that updraft."

AIG has 21 percent of its float, or shares available for public trading, sold short. That's the sixth-highest proportion in the Standard & Poor's 500 Index, according to data compiled by Bloomberg. Friday's gain marked the longest consecutive increase since May 2007, Bloomberg data show.

The company is trying to sell assets to repay loans after taking a $182.5 billion bailout from the US government. The New York-based insurer reported a second-quarter profit this month after posting six quarterly losses tied to sub-prime mortgages. AIG's so-called reverse stock split in June magnified the effect of short selling, said Jud Pyle, a market analyst at Chicago-based options trading firm PEAK6 Investments LP. Through the split, AIG gave investors one new share for every 20 they turned in to help keep the stock above $1 and avoid delisting.

"That meant there were fewer individual shares out there," Mr. Pyle said. "If you can't borrow the stock, you can't short it. Because if there are fewer shares available to sell short, that can cause a short squeeze if people aren't able to borrow it to short."

As AIG's shares have more than doubled in the last nine sessions, the company's bonds still trade at levels that indicate the company's shares may be worthless, according to Peter Boockvar, an equity strategist at Miller Tabak & Co.

"The value of the company is still the same," he said. "AIG bonds tell you that the equity is possibly worth nothing and that they may not be able to pay back the government."

AIG's $3.24 billion of 8.25 percent bonds due in 2018 are quoted at 79 cents on the dollar to yield 12.2 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The insurer¿s $4 billion of 8.175 percent bonds due in 2058 are quoted at 49.5 cents on the dollar to yield 16.7 percent, Trace data show.

Fannie Mae and Freddie Mac, mortgage-finance companies under federal control, both climbed to their highest levels in almost a year. Fannie Mae added 12 cents, or 6.3 percent, rising to $2.04. Freddie Mac advanced 16 cents, or 7.1 percent, to $2.40.

Paul Miller of FBR Capital Markets in Arlington, Virginia, said those gains also came as investors bought back shares they had borrowed and sold short, speculating that the companies will also do reverse stock splits to raise their share prices to avoid delisting from the NYSE.

"There's no value. This is all speculation," Mr. Miller said. "No one can say for sure that they're going to do a reverse stock split. I don't think the regulators want to do a reverse stock split and make a decision when the shares are $5 or $6."

Lehman Brothers Holdings Inc. also climbed on Friday, tripling to 15 cents. The failed investment bank filed for bankruptcy in September, listing $639 billion in assets, the most ever in a US bankruptcy.