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SYDNEY, Sept 17 (Reuters) - The Australian dollar pulled away from recent 2- year lows against the yen on Wednesday, supported by hopes that insurance giant American International Group (AIG) would be bailed out.

* CNBC reported that the Federal Reserve was negotiating a roughly $85 billion in financing to prevent AIG from collapsing. AIG's struggle comes just days after the bankruptcy of investment bank Lehman Brothers and the takeover of Merrill Lynch by Bank of America sent shockwaves across the globe, forcing investors to shed risky investments.

* Growing expectations of a rescue package for AIG helped soothe edgy investors and saw them sell the low-yielding yen and safe-haven government bonds, both of which are favoured at a time of heightened risk aversion.

* The Aussie climbed up to 84.88 yen from 82.48 yen <AUDJPY=R> late here on Tuesday, and off a 2- year low of 81.39 yen, struck in the previous session.

* The Aussie regained the 80 U.S. cents level, rising to $0.8010 from $0.7903 late here on Tuesday when it plumbed 13-month lows of $0.7852.

* Domestic attention will focus on a speech by Reserve Bank of Australia Governor Glenn Steven at 1:30 p.m. (0330 GMT). Markets are fully pricing in a rate cut in October and investors will be keen to know his views about the fresh turmoil in global financial markets.

* The global credit crunch had driven up domestic mortgage rates to decade highs, causing consumers to cut back sharply on borrowing and spending. That prompted the central bank to ease some of the tight conditions by cutting rates earlier this month.

* Australian bond futures were lower, tailing U.S. Treasuries which slumped after the U.S. Federal Reserve left interest rates unchanged, confounding market expectations of a rate cut.

* Bonds had been buoyed in recent sessions by safe-haven buying. Expectations that tight credit conditions could drive central banks across the world to ease policy have also supported government bonds.

* Three-year bond futures were down 0.145 points at 94.655, while the 10-year bond contract lost 0.130 points to 94.46.

(Reporting by Anirban Nag; Editing by Jonathan Standing)

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