New York/Rome  - Italian carmaker Fiat is eyeing a majority stake in ailing US producer Chrysler, with a 35-per-cent ownership by mid-year as the first step, The Wall Street Journal reported Monday.

The Journal, citing people familiar with the talks, reported that Fiat could purchase up to 55 per cent of the company over time. An agreement could be unveiled as soon as Tuesday, the newspaper said.

Such a move would be the latest in Chrysler's revolving fortunes, after German-based Daimler sold 80 per cent of Chrysler to the private investment company, Cerberus Capital Management, in 2007.

Daimler has been looking to sell its remaining 20-per-cent stake to Cerberus, but the two have not been able to agree on a price.

Earlier, efforts to develop a "strategic partnership" between Fiat and Chrysler were reported by both the Journal and the trade magazine Automotive News. Chrysler has not confirmed the details.

The deal would give Fiat long-sought access to the US market for its small and mid-sized cars, with the Fiat 500 and Alfa Romeo reported to be at the top of the list, The Wall Street Journal reported earlier from Rome.

Under the deal, Fiat could build its own small cars in the US and use the Chrysler distribution network. In exchange, Chrysler would tap Fiat's expertise building small and medium-sized cars to advance its own plans for new, front-wheel-drive models with lower emissions.

As gas prices soared and the economy stalled, sales of Chrysler's mostly large, fuel-inefficient cars and trucks fell 30 per cent in 2008.

With auto sales at a 27-year low, Chrysler has laid off tens of thousands of workers and had to beg for government rescue financing of 5.5 billion dollars just to stay afloat for the next few months.

The loan terms require Chrysler to deliver a credible survival strategy by March, and an alliance with Fiat would be a tangible new strategy.

Fiat, which exclusively makes small cars with narrow profit margins, is struggling to keep its own head above water in Europe's expensive labour market.

In a related development, Cerberus was reported to be preparing to cut nearly 10 per cent of its worldwide staff, The Wall Street Journal reported. (dpa)