Italian auto giant Fiat and its US partner Chrysler are mulling an alliance with France's PSA Peugeot-Citroen, the Corriere della Sera daily reported on Tuesday citing informed sources.
The report came after Fiat-Chrysler boss Sergio Marchionne on Monday said he would be interested "in principle" in merging with another firm in the future.
The newspaper said that Fiat's strategy "leads to Paris: the French from PSA Peugeot-Citroen are ready to negotiate an alliance."
Contacted by AFP, Fiat and PSA declined to comment on the report.
The possibility of a tie-up between Fiat and PSA was raised in the Italian press in 2009 after the alliance between Fiat and Chrysler was announced.
Fiat then tried and failed to take control of Germany's Opel, owned by General Motors.
Fiat and Chrysler, whose full merger is expected by 2015, aim to become an auto giant with joint production of six million vehicles a year by 2014.
Fiat shares on the Milan stock exchange were up 4.99 percent at 3.916 euros in early afternoon trade as the market bounced back after recent losses.