FAI controller described near loss of separation event when failing to issue timely corrective action/s.

Narrative

Aircraft X departed FAI TRSA northbound (020). His initial altitude report was 600' higher than the Mode C indicated; even after verifying the altimeter setting; so I told him to stop altitude squawk. He reached about ten miles north of FAI and requested to return due to deteriorating weather. Meanwhile; Aircraft Y departed FAI.V438.FYU; on a 032 initial heading; I issued a left turn to 330 leaving 2200 to join V438. I told Aircraft X to enter the left downwind for runway 2R. He made a 180 and turned south towards Aircraft Y. I was distracted by Aircraft Y; also a TRSA departure; who was encountering IMC and requesting an IFR pickup to CIK. HO1/CIC pointed out the conflict between the two. I turned Aircraft X right 20 degrees and issued traffic. Aircraft Y reported Aircraft X in sight and was told to maintain visual; I believe before the targets merged; but I'm not sure. Aircraft X had reported at 2800; last altitude readout I remember seeing on Aircraft Y was 2400. Bottom line; I should have immediately realized that Aircraft X's return to FAI would be a direct conflict with Aircraft Y. Aircraft Y's IFR pickup could have waited a few minutes until I'd resolved the conflict; and I should have been doubly careful since Aircraft X's Mode C was disabled (no CA). Recommendation; I was reluctant to use altitude separation since Aircraft Y was climbing into a higher MVA and Aircraft X was returning for weather; but I could have issued a sharper turn for Aircraft X and turned Aircraft Y out to the east as well.