DETROIT: Italian auto giant Fiat is in negotiations with its ailing US counterpart Chrysler that could ulitmately result in the European manufacturer taking a large stake in the US company, according to reports.

Fiat is said to have inked a memorandum of understanding which hands it a 35% share in Chrysler, plus a future option to purchase a majority holding in the American automaker.

However, analysts suggest the final terms are still being discussed, with Chrysler saying simply that it does "not confirm or disclose the nature of its private business meetings."

It is not thought Fiat will invest in Chrysler at this stage, but will instead support the modernization of Chrysler's plants to manufacture Fiat models.

Chrysler recently received a $4 billion (€3.1bn; £2.9bn) emergency loan from the US government, and is under pressure to restructure its operations.

Fiat has been seeking partners in North America as it looks to expand its US operations, and has co-operated with Ford on developing new small cars.

Data sourced from Financial Times; additional content by WARC staff