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UPDATE 3-Agnelli to take control of Fiat, Fresco out

(Adds source comment on board meet in 17th paragraph)

By Jane Barrett and William Schomberg

MILAN, Feb 25 (Reuters) - Fiat accelerated a change in leadership on Tuesday when chairman Paolo Fresco said he would step down, paving the way for Umberto Agnelli to reclaim the top job on behalf of the struggling carmaker's founding family.

Fresco, who had previously said he would retire in coming months, announced he would formally present his resignation on Friday to the group's board, which is due to discuss ways of fighting a deep crisis at car arm Fiat Auto.

In a statement, the former General Electric vice chairman who took over the top job at Fiat in 1998, said he wanted to ensure a "smooth succession" at the group.

"I am sure that my decision represents a strong message of clarity for those outside and inside the group," Fresco said, adding that Fiat's core shareholders, the Agnelli family, were set to take command of the group once again.

Fiat shares were down as much as 4.5 percent shortly after the announcement but closed up 0.4 percent at 7.19 euros.

On Monday, the shares hit a new 18-year low on concerns about a capital increase to fund partially a turnaround plan for Fiat Auto.

Investors have previously said that Agnelli, 68 -- whose brother and Fiat patriarch Gianni died in January -- might not be keen to take tough measures to cure the group's ills.

FAMILY INTEREST

Gianni was chairman of Fiat for 30 years, turning the carmaker into a global powerhouse, before retiring in 1996.

Paolo Banfi, a fund manager with Euroconsult in Milan, said Fresco had "overseen the worst years in Fiat's history. But Umberto Agnelli is a conservative choice, he will be supporting the interests of the family, not the banks or the shareholders."

Giulio Brunetta, a fund manager at Alpe Adria Gestioni, said Fresco's U.S. corporate style had alienated him from the Agnelli family, which instinctively relied on government support.

"The Italian government has always supported Fiat, the Agnelli family knows that and Fiat's ties with the government should strengthen with Umberto in charge," he said.

Prime Minister Silvio Berlusconi has met with Umberto recently to discuss the crisis and has said he wants to keep the country's biggest private sector employer in Italian hands.

Fiat has an option to sell Fiat Auto to General Motors Corp from next year and Fresco met with his counterpart from the U.S. carmaker on Sunday. GM already owns 20 percent of Fiat Auto and has a major industrial alliance with the Turin group.

Although he has in the past said Fiat might one day have to sell Fiat Auto, Umberto and other members of the privately owned family holding have agreed to contribute 250 million euros to an expected capital increase to help turn around the car arm.

FRIDAY IN FOCUS

Fiat's board is due to meet on Friday to approve the group's 2002 results and the next steps in its attempts to turn around its cash-burning car unit.

That plan includes the expected sale of Fiat's insurance arm Toro and its aviation division Fiat Avio -- worth an estimated three to four billion euros together -- as well as the sale of a majority stake in customer credit division Fidis.

An industrial source told Reuters after Fresco's statement that the board would discuss asset sales and was also considering approving a capital increase but was unlikely to provide a date for the issue.

Fresco, talking to reporters earlier on the sidelines of a conference in London, said efforts to sell Toro were going well and would be detailed on Friday when the board would examine "a bunch of issues".

"We will also talk about Fidis, about Fiat Avio, we must talk about Toro," he said, adding the group was seeking to create "fresh financial resources, selling activities which aren't strategically important for the company."