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UPDATE 1-Fiat steps closer to debt aims with Fidis,GM sales

By Jane Barrett

MILAN, Dec 21 (Reuters) - Crisis-hit Fiat moved into a better position to hit debt-cutting goals on Saturday when it agreed to sell most of its customer financing arm Fidis hours after off-loading its stake in General Motors Corp .

In a statement, Fiat said the long-awaited sale of 51 percent of financing unit Fidis to its four top creditor banks would knock about six billion euros off its gross debt, which stood at 32.8 billion euros at the end of September.

This is largely because the deal allows Fiat to deconsolidate its customer debts.

Earlier this month Fiat also sold its Brazilian financing unit, which it said would cut gross debt by 800 million euros.

There is still some way to go on debt-slashing as Fiat has promised creditor banks to cut gross borrowing to 23.6 billion euros by early next year, setting a net debt goal of three billion euros from 5.8 billion in September.

The banks gave Fiat a three billion-euro rescue loan in May and if the sputtering carmaker misses its debt goals, the creditors can convert the debt into equity, effectively taking control of the group from the founding Agnelli family.

Confirmation of the Fidis sale, which is due to be completed early next year, came hours after Fiat said it had sold its near six percent stake in GM for $1.16 billion, which it said would "substantially improve" its net debt standing.

Fiat is under pressure to cut its debt as its core car unit continues to bleed cash, forcing Italy's top private employer to cut more than 15,000 jobs worldwide in the last 12 months.

Fiat Auto, which makes about 40 percent of group revenues, is expected to post an operating loss of about 1.2 billion euros this year as sales slump, dragging the group to a net loss of 1.4 billion euros, according to Multex Global Estimates.

In a bid to pull back into profit, Fiat is investing 2.6 billion euros a year until 2005 partly to reinvigorate its tired model range by adding 20 new cars, mainly under its Fiat and sporty Alfa Romeo marques.

But analysts say the only hope for the creator of the Punto and the iconic Cinquecento is to sell its car unit to GM.

The world's largest automaker bought 20 percent of Fiat Auto in 2000 for stock worth $2.4 billion at the time. GM gave Fiat a "put" option to sell it the other 80 percent from 2004.

On Friday, both carmakers said Fiat's sale of its GM shares to an investment bank they declined to name did not affect the "put" or their joint ventures in purchasing and car parts.

A financial source told Reuters the shares had been sold to Merrill Lynch , which is advising Fiat on its restructuring.

GM had a first call on Fidis but passed it up earlier this year. The leading creditor banks -- Capitalia , Sanpaolo IMI , IntesaBci and UniCredito -- promised to buy the stake instead.

Fiat said it would sell the stake for a price in line with Fidis' book value, which media earlier this week said totalled 800 million euros.