Shares in Renault and Daimler rose on Tuesday, lifted by reports the two car makers are in talks about an equity tie-up as part of a possible longer-term partnership to cope with the industry's recession.

France's Renault and Germany's Daimler , maker of Mercedes cars, have made no secret that they are in talks over cooperating to cut costs, pool technology resources and build scale as the industry tries to become more efficient exiting the downturn.

Renault-Nissan lacks top of the line cars, despite attempts with the Safrane, Vel Satis or Korean-built Samsung models, while Mercedes seeks smaller cars beyond the A-Class and Daimler's Smart vehicles.

Sandford Bernstein analyst Max Warburton in a report published on Monday that he believed the firms were discussing: a much wider and formal level of co-operation across products and technologies.

Sources report Ghosh is trying to persuade Zetsche to join the Renault-Nissan Alliance, via an equity investment or swap, while Zetsche would prefer a simple joint venture, he said.

The Financial Times reported in its Tuesday edition that both companies were in talks about taking equity stakes in each other to forge a long-term cooperation, citing two unnamed sources.

Shares in Daimler rose 0.9 percent at 0938 GMT and Renault was up 1.62 percent. The European auto sector <.SXAP> was up 0.9 percent.

Speculation could already be heard yesterday and is based on a research note from Sanford Bernstein. We don't think that everybody would like an equity tie ahead of a partnership, said a Frankfurt-based trader.

Renault nor Daimler had any comment on Monday and Tuesday.

Bloomberg said on Tuesday, citing two unnamed sources, said that the talks had stumbled on valuation issues -- just as such talks between PSA Peugeot Citroen

and Mitsubishi Motors Corp <7211.T> a few weeks ago.


Car groups are on the hunt to cut costs by building scale and spreading out heavy investments in new technologies, such as hybrid and electrical vehicles, over large numbers of cars.

Renault-Nissan chairman Carlos Ghosn has often said that the alliance, which also includes Russia's AvtoVAZ, could be open to a third partner. Daimler's Dieter Zetsche, after a rocky and costly adventure with Chrysler, is reluctant to dive head first in a new pact.

Earlier this month at the Geneva Motor Show Ghosn said the company was talking to many people in the industry.

The name of the game is scale and co-investments and sharing technologies, he said.

You would be surprised at how many companies we are talking with for collaboration. I think it's not only Renault-Nissan, I think it's the whole industry.

Daimler is worth 37 billion euros on the stock market, while Renault, which owns about a third of Japan's Nissan Motor <7201.T>, is valued at 9.7 billion euros, Reuters data shows. (Writing by Marcel Michelson, Reporting by Jan Dahinten in Singapore, Marie Maitre in Paris, Maria Sheahan in Frankfurt; Editing by Louise Heavens)