The US Government is stepping in with a $85 billion rescue package to prevent the world's biggest insurance company from going under.

AIG, which sponsors Premier League champions Manchester United, was on the brink of collapse when officials agreed to provide an emergency loan.

The US Federal Reserve said a "disorderly failure" of AIG could undermine already fragile financial markets. The US government will receive an 79.9 per cent equity stake in return.


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The group - massively exposed to the plunging US housing market - was granted an $22billion lifeline to shore up its finances on Monday night.

But AIG was then downgraded by three major ratings agencies, making it more expensive for the firm to raise funds.

AIG, which made a net loss of $15 billion in the first half of this year, saw its shares tumble more than 30 per cent in early Wall Street trading.

The company employs more than 116,000 employees, and many full- and part-time agents, worldwide.

It operates in 130 countries and jurisdictions, including Brazil, China, India and Taiwan, as well as the United States and United Kingdom

Veteran City commentator David Buik, of BGC Partners, said it would be an "unmitigated disaster" if AIG was allowed to go under.