Negotiators for the United Auto Workers and General Motors Corp agreed to a break in contract talks on Monday after a marathon 16-hour bargaining session that raised expectations the union and the top U.S. automaker were nearing an agreement.

The outcome of the contract talks is seen as crucial to efforts by the three Detroit-based automakers -- GM, Ford Motor Co. and Chrysler LLC -- to recover from combined losses of $15 billion last year and sales difficulties that have driven their slice of the U.S. market below 50 percent.

The two sides adjourned talks just before 3 a.m. EDT (0700 GMT) on Monday and agreed to return to the bargaining table later in the day, GM spokesman Tom Wickham said.

The sudden adjournment came just hours after several UAW local officials were told that the union's negotiating team intended to remain in talks until it reached a resolution.

Analysts have seen a strike as a remote risk for GM, with several saying the weekend of nearly non-stop contract negotiations was a sign the two sides were making progress.

Any tentative contract between GM and the UAW would have to be ratified by a majority of GM's 73,000 hourly workers, most of whom were set to return to work on Monday without a new contract.

GM, Ford and Chrysler are seeking sweeping concessions from the UAW to close a cost gap with Toyota Motor Corp they say amounts to more than $30 per hour for the average factory worker.

The UAW agreed to extend its contract with GM on an hour-to-hour basis late Friday, just as it was due to expire.

DEAL OR NO DEAL?

As the UAW's strike target, GM was expected to be negotiating a contract that would be used as a pattern for the union's talks with Ford and Chrysler.

But the talks, which were underway at a GM building just blocks from its Detroit headquarters, have taken some unexpected turns since last week.

After hitting an apparent snag in talks, the UAW singled out GM as its strike target on Thursday, a term it had avoided in more collegial negotiations in 2003.

Rival automakers Ford and privately held Chrysler quickly signed contract extensions with the UAW, clearing the way for their factories to keep operating.

The chief executives of the three U.S. automakers, including GM CEO Rick Wagoner, spoke in a conference call on Saturday, a person familiar with the matter said.

The early stages of the contract talks had focused on a complex plan to allow GM to cut billions of dollars in expenses for retiree healthcare by paying into a new UAW-aligned trust fund, according to people close to the talks.

Wall Street analysts have been optimistic GM would clinch a deal to slash health care costs totaling $4.8 billion in 2006. GM's unfunded liability for such costs has been estimated at more than $50 billion.

GM and UAW had discussed how fully GM should be required to fund a special trust -- known as a voluntary employee beneficiary association, or VEBA -- in exchange for clearing that overhang from its balance sheet.

UAW President Ron Gettelfinger has also sought job security guarantees from GM in exchange for accepting a VEBA, two people familiar with the union's stance in negotiations said.

But union dissidents have vowed to fight against ratification of such a deal if presented to rank and file.

Three former UAW regional officials sent an open letter to Gettelfinger on Sunday night urging him to reject a VEBA, saying such an agreement would undo decades of hard-won health care benefit protections.

(Additional reporting by David Bailey and Poornima Gupta)

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