The US Government rushed to the rescue of AIG for a second time today, taking a $40 billion stake in stricken American insurer as it unveiled massive losses for the third quarter.

AIG said today that it had plunged to a net loss for the third quarter of $24.5 billion, including a pre-tax charge of just over $7 billion.

The US Treasury said that it would buy $40 billion of preference shares from AIG, issued by the insurer under the Government's Troubled Asset Relief Program, or Tarp.

The move formed part of a $150 billion bailout package put in place by American regulators in a tacit acknowledgement that its previous plan, pushed through in September, did not do enough to stabilise AIG, formerly the world's largest insurer.

The New York Federal Reserve, the central bank, also slashed the repayment rate on its previous $85 billion of loans to AIG from 8.5 per cent to 3 per cent more than Libor, the rate London banks charge to lend to each other.

AIG was brought to the point of collapse in September, prompting a bailout by the American central government designed to stabilise financial markets. As part of a huge restructuring, AIG has put up several assets for sale, including its aircraft leasing business and Asian insurance arm.

The insurer was brought to its knees as a result of its exposure to structured mortgage securities and swap-like derivatives contracts. There has been huge interest in other parts of its business which are financially healthy.

The issue of preference shares will help AIG to reduce its debt to the state to $60 billion, while the reduced interest rate will lessen its repayment burden.

The loan will now be for five rather than the previous two years.

In total, the US government is providing a $60 billion loan, buying $40 billion of preference and setting up two funds to help buy back securities from two of the insurer's portfolios.

One facility, of up to $22.5 billion, will be used to buy securities from AIG's US securities lending collateral portfolio, the Fed said.

The other, of up to $30 billion, will buy structured debt obligations on which AIG has written default protection.

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