Fiat on Friday (13 March) "in relation to comments in today's press", said in a statement its directors were not considering a merger with another automotive group "except as announced [in connection with discussions with Chrysler] on 20 January".

"It is a known fact that - as is true for other groups in the sector - Fiat frequently examines opportunities for agreements of various types which would offer it operational synergies and access to new markets," the brief statement concluded.

Fiat SpA's board was responding to a report earlier on Friday by Italian business daily newspaper Il Sole 24 Ore that said local investment bank Mediobanca and a strategic consultant had drawn up a plan to merge Fiat's car business with PSA.

Morgan Stanley analyst Adam Jonas told Reuters that the only justification for such a merger would be to dramatically cut costs, capacity and workers.

"That is the logic and that logic is diametrically opposed to the political agenda in Europe right now," Jonas said. "So we apply a low probability to this," he added.

Il Sole 24 Ore had said Fiat CEO Sergio Marchionne was assessing whether to present the Peugeot merger plan to Fiat's board.

A Peugeot-Citroen spokesman told the news agency the company did not comment on rumours of auto sector mergers and reiterated recent comments by a PSA executive that, even if there was no ruling out of mergers inside the company, now was not the right moment with management focused on dealing with the downturn in global demand.

Il Sole 24 Ore said the plan was based on the Italian production structure remaining unchanged to maintain jobs in the country.

Peugeot-Citroen would support the labour cost measures of the merger while the headquarters of the combined group would be in Paris with Marchionne as chief executive, the paper said, according to Reuters.

The news agency noted that the French government had said it would give state aid to the auto industry provided companies retained production sites in France.

Il Sole 24 Ore said financial details were secret while the most probable merger option would be of Fiat's auto activities with PSA.

The French automaker already has light commercial joint ventures with Fiat and co-operates with BMW on engines shared by PSA models and the German company's Mini range.