Fiat has reported an operating profit of €18m (£12m) for the second quarter to June compared with a shortfall of €25m (£17m) last year, despite worse-than-expected losses at its car business.

The car division posted losses of €282m (£186m), partly due to a strike and poor sales at home and in Europe.

Fiat, which also makes trucks, farming and construction vehicles, said it still expects to break even this year.

New boss Sergio Marchionne is scheduled to discuss the results with analysts on Monday.

According to the company, the loss at its car unit "reflects the impact of lower sales in Italy and the rest of Europe... which could not be fully offset by higher margins".

Fiat Auto's sales grew 2.6% in the second quarter, despite the introduction of new models.

Revenues were hampered by the industrial action that came to an end in May, just before death of Fiat chairman Umberto Agnelli. The three-week strike at the southern Melfi plant cut production by 130,000 cars.

The company said that research and development costs also ate into profits.

Fiat has said a turnaround plan drawn up last year will lead it to break even in 2004.

Some 1,250 jobs at car manufacturing plants will be created as part of the rescue package, although the company will need to shed 2,800 jobs.

Source: bbc.co.uk