Dongfeng, Nissan in China venture talks with Volvo

SHANGHAI, Jan 22 (Reuters) Dongfeng Motor Group Co. Ltd. said it is in talks to bring Volvo AB into its existing vehicle venture with Nissan Motor, sending shares in China's third-largest auto maker as much as 10 percent higher.

The three parties were in talks on ''a possible investment'' by Volvo in the venture, which is partly engaged in the manufacturing of heavy and medium-duty commercial vehicles.

''The discussion may lead to the possibility of Nissan Motor focusing on the passenger car and light commercial vehicle manufacture'' in the joint venture, Dongfeng said.

If an agreement was reached, Volvo would replace Nissan as Dongfeng's partner in making heavy and medium-duty commercial vehicles and engines, it said in a statement.

''It could further shore up Dongfeng's competitiveness in the heavy-duty truck sector and give Volvo an opportunity to drive its truck sales,'' sand Zhang Xin, an analyst with Guotai Junan Securities Shares in Dongfeng, which also has manufacturing ventures with Honda Motor and PSA Peugeot Citroen, jumped as much as 10 percent before ending the morning up 8.7 percent at HK.74, outpacing a 1.5 percent rise in the benchmark Hang Seng Index.

At 0527 GMT, Nissan's shares were up 2.3 percent, beating a 0.7 percent rise in Japanese stocks.

In September, Sweden's Volvo agreed to increase its stake in Nissan Diesel Motor Co. by 33.5 percent to 46.5 percent in a 3.2 million deal, paving the way for a cooperative opportunity with Dongfeng.

State media has said the state parent of Dongfeng Motor sold 932,000 vehicles last year, up 28 percent from a year earlier, and its output would top 1 million units this year.

Shanghai Automotive Co., China's largest, saw its sales rise 27 percent to 1.34 million vehicles in 2006, while First Automotive Works, another major Chinese auto maker, recorded an 18 percent rise in its sales to 1.16 million units.

REUTERS SBA DB1212