Auto giant DaimlerChrysler AG is in detailed discussions with China's Chery Automobile to make cars for sale in the United States and other markets and could finalize the deal soon, sources said on Friday.

The two sides have explored various ways to make subcompact cars together and are now in advanced negotiations, one source familiar with the matter told Reuters.

An option being discussed is for Chery to provide the models and make revisions at the request of DaimlerChrysler , while the cars would be made at Chery plants in China, the source said.

Funding for the project would be provided mostly by DaimlerChrysler, the source said, adding that models earmarked for the U.S. market would carry a Chrysler brand.

Another industry source confirmed that DaimlerChrysler, the world's fifth-largest car maker, and Chery were in late-stage talks on a tie-up, which might eventually lead to a full-fledged joint venture.

Other modes of cooperation are possible and it is not certain that a deal will be concluded, the second source said without elaborating.

Both sources said a decision was expected to be made within weeks. DaimlerChrysler and Chery declined to comment.

Chrysler Group chief executive Tom LaSorda said in Detroit on Monday that he hoped to name a partner by the end of the year to aid the division's push into the small car segment.

Chrysler currently has no offerings in the small car segment, which is growing in the United States and represents a larger share of sales in Europe and other markets.

Other candidates for the project include Japan's Mitsubishi Motors Corp and South Korea's Hyundai Motor .

It was not clear whether the talks between Chery and DaimlerChrysler were exclusive.

Chery is among a handful of upstart Chinese vehicle makers, including Geely Automobile Holdings Ltd and Great Wall Motor Co. Ltd , that are eager to push exports to diversify beyond their home market.

It has long eyed the North America market, the world's largest, via a venture with Maverick entrepreneur Malcolm Bricklin, best known for bringing the low-cost Yugo car to the United States.

Bricklin initially set a target of January 2007 for the first sales of Chery vehicles, but he told Reuters earlier this month that the launch could be delayed for the third time to 2009.

A potential tie-up with DaimlerChrysler could jump-start Chery's effort to crack the U.S. market and boost its global credibility, industry analysts said.

Chery aims to sell at least 30,000 vehicles outside China this year, mostly to developing nations, accounting for 10 percent of its total sales volume.

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