After months of talks, the two car makers announced Wednesday that they will collaborate in making a new sport utility vehicle that is meant to round out Fiat's model line while boosting Mitsubishi's presence in Europe. Fiat will design the car, while Mitsubishi, which is already strong in off-road vehicles, will provide the production platforms and mechanical parts.

Production for the new SUV, which will come in two different versions and will be sold throughout Europe, will get under way in early 2001 and will reach 30,000 units a year once fully operative, Fiat said.

The SUV will be manufactured by Pininfarina SpA, the Italian group that designs and assembles many of Fiat's niche models. Pininfarina already has a major production agreement with Mitsubishi to produce a Europeanversion of its Pajero four-wheel-drive model, whose first unit rolled off the assembly lines this week.

The agreement enables Fiat to enter into a niche that has been growing quickly in Europe without having to shoulder all the costs. The Italian car maker, which abandoned production of off-road vehicles in the early 1980s, will invest about 120 million euros ($122.9 million) in the SUV project.

While the SUV market in Europe is expanding, Fiat and Mitsubishi won't lack competition. BMW AG is to launch a four-wheel drive vehicle in the winter, while Volkswagen AG is cooperating with Porsche to develop one by 2002.

The new car is part of Fiat's efforts to renew its model line to help bring its auto division back into the black after losing 211 billion lire ($111.6 million or 109 million euros) in this year's first quarter. On Monday, Fiat will mark its 100th birthday with the presentation of a new version of the Punto, the city car that represents more than 20 per cent of Fiat's unit sales. Fiat ishoping the new Punto will help revive its fortunes in its lagging European markets and return the car division - which accounts for about half the group's total revenue - to profitability late this year.

The Mitsubishi accord, which is expected to be finalised in the autumn, is the latest of a series of technical agreements by Fiat aimed at shoring up the Italian giant's various core businesses in order to compete more effectively on a global scale. The two said they may extend their agreement to the production of engines and components, while comments from Mitsubishi executives this week squelched speculation of a global alliance for the car division.

Fiat's stock has been rising in recent weeks on improved car sales in Italy as well as a fresh round of speculation that the group will make a broad alliance for the car division. People close to the group say that Fiat will wait until its car division is in better shape before considering an alliance.