(Recasts, adds Snecma, Carlyle no comment)
By Rachel Sanderson
MILAN, March 20 (Reuters) - Italy's Fiat was the biggest decliner on the Milan bourse on Thursday, its shares falling as much as five percent on reports that France's Snecma had pulled out of talks to buy its aviation unit Fiat Avio.
At 1013 GMT, the industrial group's stock was trading at 6.07 euros, having slumped as low as 5.9 euros at the start of trading. The DJ Stoxx index of European auto shares was up 0.8 percent.
Media reports on Thursday said U.S. private equity firm The Carlyle Group had passed into pole position to snap up Fiat Avio after French state-owned aero engine maker Snecma decided to drop out of the race because it deemed the unit too expensive.
Analysts have valued Fiat Avio, Fiat's most profitable business, at 1.5 billion to two billion euros. The sell-off is part of a number of asset sales the troubled industrial group is undertaking to offset slumping sales at its core car arm.
A Snecma spokesman declined to comment on the reports. A spokeswoman for The Carlyle Group said the fund had no comment.
"Fiat is down on the fact that there seem to be obstacles to a quick sale of Fiat Avio," said Alpe Adria Gestioni fund manager Giulio Brunetta. "The fact that there do not appear to be people lining up to buy the unit is increasing nervousness about Fiat and its turnaround."
Sources had told Reuters that Snecma and Italian state-controlled defence firm Finmeccanica were expected to present a joint bid for Fiat Avio last Sunday, together with The Carlyle Group.
Also on Thursday, Corriere della Sera reported that Sanpaolo IMI Chairman Rainer Masera had written to Fiat on behalf of the car maker's main creditor banks to seek a meeting that would clarify the status of its ties with General Motors Corp .
Fiat has asked U.S. giant General Motors, which owns 20 percent of Fiat Auto and could be compelled to buy the rest next year, to help out with a five billion-euro recapitalisation for the group. GM has not yet decided on the matter.
Masera also asked for more information on Fiat's liquidity situation and a likely timetable for a recapitalisation, Corriere della Sera said.
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