MILAN, Italy (AP) _ Fiat Group Automobiles SpA announced Tuesday that it has signed a letter of intent to create a joint venture with Russia's Severstal Auto to build and sell Fiat brand cars and commercial vehicles in Russia.

Production of Fiat vehicles under the 50-50 joint venture is to begin in the first quarter of 2008, Fiat said in a statement.

``All of the vehicles produced in Russia will meet the quality standards of the Fiat Group,'' Fiat said, adding that it will decide the product range.

While details of the Severstal deal were still being worked out, it is part of Fiat Group CEO Sergio Marchionne's strategy seeking industrial alliances and joint ventures to share costs and enter key markets.

``Severstal Auto's knowledge of the Russian market will reinforce Fiat's investment and efforts in the region,'' Marchionne said in the statement.

Severstal Auto's CEO Vadim Shvestov called the deal ``an important step on the road to a strategic collaboration between Fiat and Severstal Auto.''

Severstal Auto, the carmaking division of Russian steel group OAO Severstal, recently announced a joint venture with Japan's Isuzu Motors to build trucks in Russia. It already has licensing agreements with Fiat SpA and South Korea's Ssangyong Motor Co.

The deal was announced on the sidelines of the Frankfurt Auto Show, where Fiat Auto's chief executive said he was optimistic about increasing the company's market share through 2007, but warned it may taper off in 2008.

Luca De Meo said a new model lineup, ongoing cost cuts and plans for international alliances should help it expand its share of the competitive automotive market this year.

``I believe we'll gain market share this year,'' he told reporters, but said that ``2008 will be a year of consolidation.''

He said that the sales of the Grande Punto had helped drive sales, while the Bravo family sedan, launched in February, was performing ``in line with expectations.''