(Adds confirmation from sources, market reaction)
MILAN, April 24 (Reuters) - Fiat is talking with creditor banks about their extending the deadline of a three billion euro loan, offering more credit and underwriting a possible Fiat capital increase, financial sources said Thursday.
The banks have long been keen to avoid converting the three billion euro loan -- granted last year -- into Fiat shares.
The sources confirmed a report in financial daily Il Sole 24 Ore that the banks were in talks with Fiat Chief Financial Officer Ferruccio Luppi.
"Changes are being studied but for now it's just a hypothesis," one source said. "There's no guarantee that it will bear fruit."
At 0745 GMT, Fiat shares were up 0.2 percent, outperforming the DJ Stoxx European auto index , which was down 1.2 percent.
The banks -- led by Italy's Sanpaolo IMI , UniCredito , Capitalia and Intesa -- might agree to extend by two or three years the deadline for repayment of the loan originally due in 2005, Il Sole said.
Fiat won the three billion euro lifeline last year as it struggled against falling sales and rising debt.
Il Sole said the banks might also offer a new credit line worth one billion euros, which would not be convertible into Fiat shares, and agree to buy shares not taken up by the market in a potential Fiat capital increase, Il Sole reported.
Earlier this week, Fiat Chairman Umberto Agnelli said the industrial group's plan to focus on its ailing car arm would probably require more cash.
The terms of the new agreement were unlikely to be ready for approval by a Fiat shareholders meeting in May, the newspaper said.