(Updates with details, background, changes dateline, pvs MOSCOW)
ROME, Dec 17 (Reuters) - Russia and Italy formalised an agreement on Tuesday to convert some former Soviet Union debt into increased Italian investment in the country.
After a ceremony in Rome, Russian Finance Minister Alexei Kudrin told reporters the deal would bring "hundreds of million of dollars" of increased investment to Russia.
Italian Foreign Minister Franco Frattini said he expected the agreement to greatly boost the presence of small- and medium-sized Italian businesses in the former Soviet Union.
Under the project, the Russian government helps finance investment by Italian businessmen in Russia in exchange for the investor buying out part of the debt owed to Italy.
Russia's total debt to Italy is $5.5 billion. Neither Kudrin nor Frattini gave any figures for the exact value of the debt conversion deal.
The $5.5 billion is part of Russia's total $40 billion of debt to the Paris Club of creditor nations, inherited from the Soviet Union and restructured in 1996.
As part of the debt accord, which stems from previous Italo-Russian summits held in Moscow earlier this year, the two nations also agreed to forge closer ties between their respective aerospace and defence industries.
There are already projects in the works in that sector, with Russia and Italy working on the development of a Yakovlev training aircraft, the Yak-130.
As for infrastructure cooperation, a joint gas project called Blue Stream is nearing completion and there is ongoing development of the Astrakhan oil and gas deposits.
Italian conglomerate Fiat and Russian automaker GAZ are working jointly on the design and manufacture of a new car based on the Fiat Stilo.
As well as finance and investment assistance, Frattini promised strong support in helping to bring Russia ever closer to the European Union fold.
He said that when Italy took over the rotating presidency of the EU in July next year, its priority would be to "integrate Russia as much as possible into an enlarging EU".
"That is the objective that has been made clear more than once by Prime Minister Silvio Berlusconi in his meetings with President Vladimir Putin," Frattini said.