Fiat has been warned by creditor banks that its debt could be downgraded to junk bond status unless the group strengthens its restructuring plan. The banks are pressing Italy's largest industrial group for increased asset sales to avoid a downgrade, which would severely limit Fiat's financing options at a time when its main creditors have reached their lending limits with the group.

Two weeks ago Fiat unveiled lay-offs and asset sales, including the partial sale of its Ferrari sports car unit, after reporting a first-quarter net loss of €517 million but bankers fear the measures are insufficient. During weekend talks in Rome, executives from Banca di Roma, IntesaBCI and Sanpaolo IMI sought pledges from Mr Paolo Fresco, Fiat chairman, and Mr Paolo Cantarella, chief executive, to consider selling more assets and possibly seeking fresh capital.

Bankers said a pledge to sell more assets and to fine-tune the financing of €33 billion in bank loans and corporate bonds should avoid a downgrade by Moody's of Fiat's long-term debt. It is rated Baa2. The firm's troubles, stemming from massive losses at Fiat Auto, its car division, have sparked calls for government help to avert a slowdown of the economy.