Loss-making Swedish carmaker Saab is to use BMW engines in a move by Dutch owner Spyker to help boost its recovery and appeal.

Undercapitalized Spyker Cars, which bought Saab in February from General Motors for $400 million, said on Wednesday the luxury German group will supply four-cylinder 1.6 liter turbocharged gasoline engines for its new 9-3 model, from 2012.

BMW's engines and their fuel savings innovations are widely regarded as a benchmark in the premium segment, Saab Chief Executive Jan Ake Jonsson said.

The two firms are open to exploring further opportunities, but both Jonsson and Ian Robertson, member of the board of management at BMW, told a news conference in southwest Sweden it was too soon to say what that could mean in the future.

The deal will help Spyker, which wants to sell 120,000 cars per year in the long term, obtain new technology despite its negative shareholders equity value of 126 million euros ($168 million) when liabilities surpassed assets in June.

The Saab 9-3 model was built on an Opel Astra, which was quite a downgrade. A deal with BMW would help the brand, Keijser Capital trader Peter Jurgens said earlier this week when reports surfaced of an imminent engine deal.

The deal is a move away from dependency on Saab's former owner U.S. car maker General Motors GM.UL, which currently is Saab's only supplier of gasoline engines.

An effect of this is that we have spread our dependability on different sources, Jonsson said, adding the BMW deal was fully funded in Saab's business plan.

This (deal) will help us not only to deliver, but to improve on the business plan, he said.

Jonsson told Reuters he still expects Saab to sell about 45,000 cars this year and about 80,000 units in 2011.

Germany's BMW, the world's biggest maker of luxury vehicles, is keen to strengthen its position as an engine supplier after deals with France's PSA Peugeot Citroen and U.S.-based Carbon Motors, which makes police cars.

Carmakers globally are keen on partnerships to develop cars or exchange technology to save costs.

This summer, France's Renault-Nissan Alliance and India's Bajaj Auto and the duo Mitsubishi Motors and PSA Peugeot Citroen signed deals to jointly develop cars.

(Reporting by Greg Roumeliotis, Gilbert Kreijger and Victoria Klesty; Editing by David Cowell, Mike Nesbit