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FIAT has agreed to buy a stake in Chrysler in a €3.19bn deal, the last step needed before the Italian and US car manufacturers can merge to create the world's seventh-largest car maker.

Sergio Marchionne, chief executive of both manufacturers, has structured the agreement so that Chrysler puts up most of the cash, easing strains on the Italian parent as it seeks to end losses in Europe.

"In the life of every major organisation and its people, there are defining moments that go down in the history books," Mr Marchionne said. "For Fiat and Chrysler, the agreement just reached is clearly one of those moments."

Full ownership of Michigan-based Chrysler will combine the two into a global player with better scale to challenge global leaders General Motors and Volkswagen. Chrysler and Fiat together delivered 4m vehicles worldwide in 2012, compared with 9.07m vehicles sold by Germany's VW and 9.3m by GM.