China's First Automotive Works Group Corp (FAW), the country's biggest vehicle maker, has signed a co-operation agreement with Japan's Toyota-controlled Daihatsu Motor Co Ltd to make sport utility vehicles (SUVs) in China, Xinhua news agency said.

The agency said the Terios will be the first produced under the co-operation agreement with assembly expected to start in the second half of 2003.

It quoted a source with an FAW unit as saying the introduction of SUVs will pave the way for the set up of a joint venture with Daihatsu Motor in the future.

FAW's president said last August that the company hadsigned an agreement with Toyota to jointly produce luxury sedans, compact cars, SUVs and multi-purpose vehicles.

FAW sold 580,000 vehicles last year, up 45% from a year earlier, while sales revenue exceeded $US10 billion, up 34.8% year-on-year.