UPDATE 1-Fiat, Guangzhou Auto to sign factory deal

* Agreement for factory with Guangzhou Automobile

* Signing on Monday in Rome
(Recasts with comments from Chinese officials, changes
dateline previously MILAN)

By Silvia Aloisi

ROME, July 5 (Reuters) - Car maker Fiat SpA (FIA.MI: Quote, Profile, Research) will
sign a deal for a plant in China with Guangzhou Automobile
Industry Group on Monday, Chinese officials said on Sunday, an
important step into a market that is booming against the
trend.

"They've had discussions with Guangzhou Automobile and
they're about to set up a factory in China," Sun Yngfu,
director-general of European Affairs at China's commerce
ministry, told journalists in Rome on Sunday.

The agreement should be signed around 12 noon local time
(1000 GMT) on Monday, a Chinese official said.

Fiat, which has just taken a 20 percent stake in U.S.
automaker Chrysler, has long sought a strong partner in China,
where car sales are booming in contrast to slack demand in
Europe and the United States.

Fiat Chief Executive Sergio Marchionne said last month his
company was close to a deal in China with the Guangzhou group.

"We're very interested in cooperation in the auto sector,"
Yngfu said.

Marchionne wants Fiat to gain scale to face a global crisis
for the industry triggered by slumping demand and a credit
crunch for consumers.

He bid for Opel, the European unit of General Motors Corp
GMGMQ.PK, but pulled out of talks and now says he is still
interested but will not improve the offer.

Another Chinese car maker, state-owned Beijing Automotive,
submitted a late bid for Opel on Friday, rivalling an offer
from Canadian auto parts maker Magna. (MGa.TO: Quote, Profile, Research) [ID:nL3419016]

On Sunday, business daily Il Sole 24 Ore said the alliance
between Fiat and Guangzhou will see a joint production plant
launched in China in 2011 to produce a new version of Fiat's
Linea model and, subsequently, Fiat's Bravo and Grande Punto
models.

A Fiat spokesman said he could not confirm the report.

The alliance with Guangzhou is expected to be split equally
between the two companies, Il Sole 24 Ore said.

Fiat's earlier attempts to gain a foothold in China, where
car sales soared 47 percent in May, have stalled.

In March, China's Chery Automobile Co delayed a joint
venture with Fiat, citing the industry downturn.
[ID:nSHA64487]

Those talks came after Fiat pulled out of an alliance with
Nanjing Automotive in 2007 when the Chinese company merged with
SAIC Motor Corp (600104.SS: Quote, Profile, Research).
(Writing by Nigel Tutt and Jo Winterbottom; editing by Simon
Jessop and Matthew Lewis)