By Gilles Castonguay

Italy's Fiat SpA on Friday said it would not assume any debt from would-be partner and troubled carmaker Chrysler LLC , less than two weeks before Chrysler is to meet U.S. demands for a crucial loan.

Fiat denied a statement by Chrysler that it would assume 35 percent of that company's debt to the U.S. government.

Fiat Group intends to make it absolutely clear that the proposed alliance will not entail the assumption of any current or future indebtedness of Chrysler, Fiat said in a statement.

At about 1330 GMT (9:30 a.m. EDT), shares in Fiat, which is looking to form a partnership with Chrysler, were down 2.68 percent at 4.58 euros, while the DJ Stoxx auto index <.SXAP> was down 1.06 percent. Fiat shares were earlier down more than 4 percent.

A video message on Chrysler's media website on Thursday said Fiat would take on 35 percent of Chrysler's debt to the U.S. government, but would not receive any money from that pool.

The percentage figure is the same as Fiat's planned equity stake in the No. 3 U.S. car maker.

The partnership comes as the car industry is struck by the worst crisis in decades. It helps Fiat gain the scale it needs to stay profitable and Chrysler to stay in business.

VIABLE CONCERN

Chrysler has received a $4 billion emergency loan from the U.S. government and has requested another $5 billion.

It has until March 31 to prove to the government that it can remain a viable concern and deserves the extra loan. Its partnership with Fiat depends on it getting that money.

In a non-binding agreement, Fiat is to take a 35 percent stake in Chrysler in exchange for technology to make small cars as well as access to foreign markets.

Fiat will not pay cash for the stake in Chrysler, which is 80.1 percent owned by Cerberus Capital Management, a private equity firm.

Analysts expect Fiat to end up investing something in the partnership in the coming years.

Nothing is free in this world, said Arndt Ellinghorst at Credit Suisse.

Commerzbank's Gregor Claussen said: It will have to invest because Chrysler plants are not made for Fiat cars.

Chrysler has said the partnership was worth up to $10 billion for Chrysler and could preserve 5,000 manufacturing jobs in North America.

It has also said the combined purchasing budget of the two companies would be $80 billion.

(Editing by Andrew Macdonald)

Chrysler