US auto giant General Motors is to acquire up to seven percent of France's PSA Peugeot Citroen as the French group raises one billion euros ($1.35 billion) with a share sale, reports said Tuesday.
The Wall Street Journal cited a source familiar with the talks who said the Peugeot family, which controls 30.3 percent of the capital and 45.75 percent of voting rights in the firm, would also subscribe when the shares went on sale.
French business daily Les Echos reported that GM was in talks to buy of five percent in PSA, France's biggest car manufacturer.
The newspaper cited sources close to the negotiations as saying the deal was a so-called standstill agreement in which GM could not increase its PSA stake further without permission from the French car maker.
Other reports said GM's stake could be as much as seven percent.
Contacted by AFP, both Peugeot and GM refused to comment.
Last week, French Labour Minister Xavier Bertrand said GM and Peugeot were holding talks about a strategic partnership.
Peugeot is Europe's second biggest auto manufacturer behind Volkswagen of Germany.
Last year, the French firm, which employs 205,000 people worldwide, sold 3.5 million cars, two-thirds of them in Europe where the market is under pressure.
Peugeot shares stabilised Tuesday after jumping eight percent in early trading, finishing the day with a slight gain of 0.42 percent at 15.37 euros
The CAC 40 index of French blue-chips was 0.36 percent higher overall.
Bertrand said last week that Peugeot chairman Philippe Varin had told him a deal with GM would allow PSA to cut its production costs.
The minister said the talks were broadly good news but added that his government, which does not own shares in the company, was seeking assurances that French jobs were safe.
President Nicolas Sarkozy is seeking re-election in eight weeks and Peugeot is a major French employer.
The Financial Times has reported that an alliance would see Peugeot and GM's European subsidiary Opel Vauxhall jointly developing parts and engines for vehicles sold under their respective brands which together account for 20 percent European sales.
The French economic magazine L'Usine said PSA and Opel might cooperate on a common low-cost platform used to build cars for emerging economy countries.
But the Wall Street Journal said there were no plans to cut production capacity even though industrialists believe Europe currently has a substantial surplus.
GM, which two years ago went into bankruptcy and recovered only with massive US government help, tried to sell the Opel business in 2009 but then decided to keep it on concerns a sale would compromise its technology.
PSA said last month that it was open to the idea of an international alliance but early rumours focused on a possible tie-up with the US and Italian group Fiat-Chrysler.
Fiat boss Sergio Marchionne told a press conference in Brussels Tuesday: "We can do things all over the world.
"There are not many partners left in Europe," Marchionne noted, though he added: "I look at everyone."
PSA's sales fell 1.5 percent last year and its net profit was cut in half to 588 million euros ($777 million).
The group already has cooperation agreements with Germany's BMW to build petrol engines, with Fiat and Turkey's Tofas to build light trucks, and with US giant Ford for diesel engines.
PSA also works with Japan's Mitsubishi to build SUVs and electric cars, with Toyota for small cars and with its historic French rival Renault to build motors and mechanical parts.
But the group has struggled to compete globally with industry mammoths like GM, Toyota and Volkswagen and auto alliances such as Renault-Nissan and Fiat-Chrysler.
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