Canadian auto parts group Magna has reached a preliminary deal with General Motors Corp to invest in Opel, boosting hopes for a deal with the U.S. and German governments to save the carmaker.

Sources close to the negotiations told Reuters on Friday that Magna and GM were working out the final details of an agreement before a meeting with Chancellor Angela Merkel and senior ministers set for the evening.

We have an agreement in principle between GM and Magna, one of the sources said.

German Economy Minister Karl-Theodor zu Guttenberg told reporters there was no guarantee a deal to save Opel would be clinched on Friday.

But an agreement between GM and Magna is a first step toward securing the future of the Ruesselsheim-based group, which has been under GM's control for the past 80 years and traces its roots in Germany back to the 19th century.

The German government has been scrambling to safeguard Opel's future before its U.S. parent files for bankruptcy, a step which GM bondholders said could come on Sunday or Monday.

A first round of talks between Germany, the U.S. government and GM collapsed amid mutual recriminations on Thursday morning, prompting Berlin to set a new round of negotiations for Friday.

Italian carmaker Fiat, Magna's main rival in the battle for Opel, said hours before the talks were to begin that it would not participate.

That left the door open for Magna, which was started by Austrian emigre Frank Stronach in a Toronto garage nearly half a century ago and plans to use Opel to make a push into the Russian market.

LIFE GOES ON, SAYS FIAT

Speaking to reporters in Montreal, Fiat Chief Executive Sergio Marchionne appeared to concede defeat to Magna, saying his focus was on the company's recent deal with Chrysler.

I think we will just keep on focusing on what we have, and we're in the final days of restructuring of the Chrysler transaction, and I think that our objective is to close that deal, he said. If the Opel transaction is not available to Fiat, life will move on.

Fiat stock fell on the news, trading 4.15 percent lower at 7.51 euros at 1530 GMT.

For the Magna deal to work, U.S. officials must abandon their opposition to German demands that Opel assets be temporarily placed in a trust to protect them from GM creditors.

If they do so, Germany would likely be prepared to release 1.5 billion euros ($2.1 billion) in bridge financing that would tide Opel over until a merger is closed.

Based in Ruesselsheim near Frankfurt, Opel employs 25,000 staff in four German plants.

It is part of a GM Europe operation that employs over 50,000, with car manufacturing plants in Spain, Poland, Belgium and Britain, where Opel cars are sold under the Vauxhall brand, as well as engine and parts sites such as Aspern near Vienna.

Like its parent GM, Opel has suffered acutely from the worldwide economic slowdown. Its fate is being followed closely in Germany, where the auto industry remains a potent symbol of the country's postwar recovery and export-driven economy.

Chancellor Merkel faces an election in four months time and is keen to ensure a deal goes through. Were it to fail, Opel would face insolvency, a step which could lead to mass job losses.

(Additional reporting by Christiaan Hetzner in Frankfurt, Ian Simpson in Milan and Madeline Chambers in Berlin; Writing by Noah Barkin; Editing by Rupert Winchester)

Germany General motors