LONDON (Reuters) - UK insurer Prudential is in advanced talks with two strategic investors to take a 20 percent stake in the company, reported the Sunday Times.

The funds raised would help mount an £8.6 billion ($14.93 billion) bid for the Asian business of American International Group, the insurance giant bailed out by the US taxpayer, the newspaper said.

Prudential is being advised by UBS and Credit Suisse, which is negotiating with investment funds in the Middle East and China, according to the report.

A spokesman for Prudential declined to comment on the report.

The Sunday Times said it is not yet clear whether one or two investors will take part, but whoever does will be offered board representation. It added that the investors could pump at least £1.2 billion into the British company.

Prudential's chief executive held talks with AIG last week over the purchase, according to the report.

Last month, the US government extended AIG, once the world's largest insurer, $85 billion in bailout financing, and later raised the loan to $123 billion.

AIG plans to keep its US property and casualty, foreign general insurance businesses and an ownership interest in its foreign life operations, but sell the remainder.

However, asset sales are taking longer than hoped as credit for deals is tough to come by and potential buyers wait for bargain prices and grapple with their own problems.

Meanwhile, AIG may seek a third source of government cash by tapping a Federal Reserve programme that buys commercial paper, according to a person familiar with the matter.

AIG probably will borrow less than $10 billion through the new commercial paper programme, said the person, who declined to be identified because no agreement had been reached. AIG has already used two-thirds of its $122.8 billion credit line in the past month to cover bad bets made on the US housing market.

A third loan would add to evidence that an emergency $85 billion lifeline from the Fed on Sept. 16 and a $37.8 billion facility last week weren't enough to satisfy the New York-based insurer's need for cash. Chief executive officer Edward Liddy is trying to sell units including US life insurance, plane leasing and consumer finance to repay the debt.

"We've got a plan that will allow us to repay the Fed loan and emerge as a strong international property-casualty insurer with a presence in international life insurance," said AIG spokesman Nicholas Ashooh.

The Fed said last week it will create a special fund to buy commercial paper, seeking to unblock the financing that drives everyday commerce for American businesses. The programme will start on October 27, the Fed said this week. A spokesman for the New York Fed declined to comment.

The insurer, which employs some 200 people in Bermuda, has seen its share price drop by more than 95 percent this year and has posted three quarterly losses totalling more than $18 billion.

Representative Henry Waxman, chairman of the House Committee on Oversight and Government Reform, demanded in a letter on Friday to AIG that the insurer turn over e-mails and other dispatches sent and received by Joseph Cassano, who ran the firm's financial products unit responsible for more than $25 billion in write-downs. Waxman also asked for e-mails from employees William Kolbert, Pierre Micottis and Doug Poling.