The Treasury said on Thursday it reached an agreement to sell its remaining 6 percent equity stake in Chrysler to Italy's Fiat in a deal that will net Washington $560 million.

The proceeds of the deal include the sale of the government's interest in a United Auto Workers healthcare trust fund, Treasury said in a mid-evening statement.

The Obama administration invested $12.5 billion in Chrysler under the Troubled Asset Relief Program in 2009 as part of an auto industry bailout that eventually brought both Chrysler and General Motors Corp through bankruptcy court.

After the transaction with Fiat, Treasury will have received some $11.2 billion back in principal repayments, interest and canceled commitments from Chrysler.

Treasury is unlikely to fully recover the difference of $1.3 billion, the statement said. Treasury Secretary Timothy Geithner said the administration bailout had enabled automakers to mount one of the most improbable turnarounds in recent history that is now creating jobs as domestic automakers gain market share.

Fiat agreed to pay Treasury $500 million for Treasury's 98,461 shares of Chrysler. Treasury also had an option to buy shares held by the UAW retiree trust and Fiat agreed to buy that for $75 million -- with Treasury to get $60 million and the government of Canada $15 million.

TIMED TO OBAMA TRIP

The announcement of the deal with Fiat came on the eve of President Barack Obama's scheduled visit to a Chrysler plant in Toledo, Ohio, where he is expected to tout the success of the auto bailout that saved American jobs and historic auto nameplates like Chrysler.

Treasury said that once the transaction is completed, it will have fully exited its investment in Chrysler. Since the 2007-2009 financial crisis ended, Treasury has been making every effort to sell off interests it acquired in industry as part of the rescue effort during those troubled years.

Before Thursday's announcement, Fiat held a 46 percent interest in Chrysler. That will rise to 52 percent when the transaction is completed and thus give the Italian automaker majority control, which was one of Fiat Chief Executive Officer Sergio Marchionne's overarching goals for 2011.

Fiat has made swift work toward that goal in the past six months after meeting certain performance targets and repaying its $7.6 billion in loans owed to the United States and Canada last week.

RECESSION'S TOLL

Chrysler filed for bankruptcy protection in 2009 after the credit crunch and recession pummeled auto sales. June 10 will mark the two-year anniversary of Chrysler's emergence from bankruptcy under the management of Fiat.

As the two companies deepen their financial ties, they are also drawing closer together operationally. Earlier this year, Marchionne left open the possibility of a full merger of the two companies with a single headquarters.

Marchionne's revival strategy for both automakers hinges on boosting combined sales to 6.6 million vehicles by 2014, an ambitious goal considering that Fiat and Chrysler together sold just over 3.6 million vehicles globally last year.

An initial public offering for Chrysler is also possible, but Marchionne said this week the timing and possibility of an IPO would depend on the level of interest of the healthcare trust affiliated with the UAW.

I don't think there's a 100 percent guarantee of the fact that there is an IPO, Marchionne said this week at an event in Windsor, Ontario, just across the border from Detroit. But he added an IPO would be the easiest way to create value.

(Additional reporting by Jeff Mason and Deepa Seetharaman in Detroit; Editing by Peter Cooney)