NEW YORK (AP) _ Investment banks raising funds for the turnaround of Chrysler Group postponed a US$12-billion debt offer after investors balked, so they will now fund the bulk themselves to keep the automaker's sale on track, people familiar with the matter said Wednesday.

The banks, which include Goldman Sachs Group Inc. and JPMorgan Chase & Co. and two Canadian companies, will fund about $10 billion of the deal, said the people, who could not comment on the record because they were not authorized to speak publicly.

Other banks that will split the $10-billion financing include Citigroup Inc., Morgan Stanley, Bear Stearns Cos., Toronto-Dominion Bank (TSX:TD) and Royal Bank of Canada (TSX:RY). They could not immediately be reached for comment.

Cerberus Capital Management _ the buyer _ and DaimlerChrysler _ the seller _ will together fund the other $2 billion. The banks will take a second-lien position behind Cerberus and Daimler, which means that Cerberus and Daimler would collect first in any default.

The move had been expected by Wall Street, as investors have become more reticent to buy into deals because of woes in the home-mortgage market and less demand for high-yield debt.

Cerberus plans to raise about $62 billion in total as part of a plan to recapitalize Chrysler and refinance old debt.

A spokesman for Cerberus would not comment about the new financing plan, but said the acquisition of an 80 per cent stake in Chrysler Group is still on track to close in the coming days.

DaimlerChrysler chief financial officer Bodo Uebber was asked about the issue during a conference call about the Mercedes Car Group and decline to comment on the financing and loan situation. Chairman Dieter Zetsche also declined to comment but insisted the deal was on track to close as scheduled.

Bankers have had a better time raising about $6 billion in loans for Chrysler's finance unit, according to people familiar with the matter who were not authorized to speak publicly on that deal. Though terms had to be sweetened, that financing _ along with the $12 billion raised by the banks, Cerberus and DaimlerChrysler _ is expected to close on Aug. 3.

Chrysler Group is planning a massive celebration to mark its return to American control hands after nine years of ownership by the German-based automaker. Cerberus, one of the largest U.S. buyout shops, announced in May it would pay $7.4 billion to buy the company from Daimler.

Cerberus's bid to buy Chrysler is a stunning reversal of the takeover of the Jeep and Dodge maker by Daimler Benz AG in 1998. Although it was billed as a merger that would create a global automotive powerhouse, the corporate cultures clashed and the companies never fully integrated their operations.

DaimlerChrysler shares rose $2.25, or 2.5 per cent, to $91.70 in midday trading.