JFE Holdings, the world's fifth largest steelmaker, will spend about US$1bn for a 14.9% stake in India's JSW Steel, just short of a mandatory takeover trigger level, in its bid to gain a foothold in the fast-growing Indian market.

The purchase, JFE's first major capital investment in a foreign steelmaker, will allow it to tap the rapidly growing market for auto steel in India and give JSW, India's third largest steelmaker, capital needed to expand production, Reuters reported.

Rival Nippon Steel plans to form an automotive sheet steel joint venture with Tata Steel by the end of the 2012 financial year.

Car sales in India are set to rise 12-13 percent in 2010/11 on the back of an expanding economy, prompting global carmakers to boost investment in the country.

"Domestic demand is weak and we have no choice but to shift our focus to expanding overseas," JFE vice president Shigeru Ogura told a news conference in Tokyo.

"We need to tap demand in broader Asia including the Middle East. Within that, India is an appropriate place to make an investment, and we view JSW as an attractive company with good growth strategy. "