Fuji Heavy said on Monday its president Takeshi Tanaka met the executives at General Motors Corp and Ford Motor Co over possible cooperation in technology and parts procurement.

But it said the talks did not cover possible equity stakes, playing down a Japanese media report that GM may buy 20 per cent of the carmaker, and left open the possibility of talks with other carmakers as well.

"We would like to be flexible in forming fresh alliances with various manufacturers beyond the two (US) firms in those fields that would bring mutual benefit," Fuji Heavy said in a statement.

The news sparked a surge of buying interest in the automakers' stock, already a darling among foreign investors, who held 17.5 per cent of its shares by March end.

Fuji Heavy's shares jumped bytheir daily limit of 100 yen, or more than 10 per cent, to end Monday's session at 1,063 yen and within striking distance of an all-time high of 1,130 yen set more than 10 years ago.

Analysts said Fuji Heavy appeared to have begun its search for a foreign partner while still at its most attractive, enjoying strong earnings despite Japan's long recession as remodelled versions of its unique four-wheel-drive, boxer-engine cars drew renewed loyalty from customers.

"Now is the best time for the company to start negotiations, as it will be able to shop for the best terms from various companies," said Shinji Kitayama, car industry analyst at New Japan Securities.

Analysts said the heavy demands of future investments in environmental technology and the risks for a niche player relying on a handful of models left Fuji Heavy with little choice, but to seek an alliance.

"Fuji Heavy is now in the group of winners but there is no guarantee that it will continue to win. Given its very limited car lineup, if itfails in one sector, it would seriously damage the business as a whole," said New Japan Securities' Kitayama.

He said Fuji Heavy may also need foreign equity ties to avoid becoming a takeover target, which would in theory be feasible with less than 300 billion yen ($2.5 billion) given its market capitalisation of 580 billion yen, or only 3.8 per cent that of Japan's biggest automaker, Toyota Motor Corp.

Fuji Heavy also could no longer rely on its leading shareholder, number-two Japanese carmaker Nissan Motor Co, which itself has been pushed into an international alliance as it struggled with heavy debts.

Nissan in March forged a deal with Renault SA handing the French automaker a minority controlling stake and forming the world's fourth-biggest automaking group.

Nissan suffered a hefty group net loss of 27.71 billion yen for the year to March, while Fuji Heavy was powered to a 10 per cent rise to 33.7 billion yen by strong sales of its mainstay Legacy and Forester models.

"Although Fuji has beenmaking good profits recently, its financial base is not stable, given its thinning relations with Nissan," said Toshikazu Suzuki, an industry analyst at Taiheiyo Securities. "I think it would be difficult for Fuji to survive as an independent automaker," he added.

Several other second-tier Japanese carmakers already have equity links with the US heavyweights. Ford owns a controlling minority stake in Mazda Motor Corp, while GM last year raised its holdings in Suzuki Motor Corp and Isuzu Motors Ltd.

Some analysts wondered whether the US automakers would be interested in another mid-sized Japanese company.

"If American automakers would seek an alliance with Japanese makers to obtain small-car technology, GM has Suzuki, Ford has Mazda," said Peter Boardman, senior analyst at Warburg Dillon Read. "I cannot understand why GM and Ford would want to have Fuji's technology."