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UPDATE 1-Daimler may build Mercedes cars with Renault -report
* Cars could be made in eastern Europe from 2016 -paper
* Cars could include small Mercedes off-roader -paper
* Decision could be made by end-2012 -paper
* Daimler, Renault decline to comment
* Daimler shares up 0.4 pct to 41.89 euros (Adds details, background)
By Maria Sheahan and Andreas Cremer
FRANKFURT, Aug 23 (Reuters) - German carmaker Daimler is considering making passenger cars for its core Mercedes brand with partners Renault and Nissan , German paper Financial Times Deutschland reported, without saying where it got the information.
The first cars might be constructed jointly from 2016 in eastern Europe and could include a small Mercedes off-road vehicle, and cars for Nissan's premium brand Infiniti, the paper said, adding a decision might be taken at the end of 2012.
For Daimler, joint production with Nissan is designed to narrow the gap with luxury-market leader BMW and Volkswagen's Audi whose second-quarter operating margins of 11.6 percent and 11.5 percent respectively far exceeded the 8.6 percent at Mercedes.
"Mercedes is lagging its key rivals and has been under strong pressure for about a year to post better results," said Frankfurt-based Metzler Bank analyst Juergen Pieper. "They're trying hard to shake off their loser image."
Spokesmen for Daimler and Renault declined to comment. The shares at Stuttgart-based Daimler rose 0.4 percent, or 18 cents, to 41.89 euros as of 1016 GMT.
Under intense pressure to shave costs, automakers have sought to develop or expand alliances that give them access to car segments not yet in their portfolio or to new markets.
General Motors Co and PSA Peugeot Citroen announced a global alliance in February with the U.S. automaker taking a 7 percent stake in Peugeot as part of a deal that includes pooled purchasing and research and development.
GM is banking on the partnership to help it reverse 12 years of losses in Europe while Peugeot hopes to boost sales outside its core European market.
BMW and Toyota Motor Corp agreed in June to extend their cooperation to a bigger strategic alliance including projects on fuel cells, electrified powertrains and lightweight construction. The move caused BMW to end cooperation with GM and its partner Peugeot.
Daimler, Renault and Nissan announced their alliance in April 2010, three years after the German manufacturer extricated itself from a tie-up with U.S. carmaker Chrysler, one of the least successful deals in global auto-making.
Daimler, Renault and Nissan have since been forming closer links and exploring ways to share vehicle, engine and other technologies to save development costs and respond faster to market needs.
"Nissan is a good, respectable partner," said Pieper, adding there was no need for concern at Daimler that opening up Mercedes to co-production might harm its reputation.
"A jointly-built SUV makes good sense. Such customers aren't as sensitive as S-Class buyers."
Two months ago, Daimler and Nissan struck a deal on trucks under which Daimler's Japanese truck unit Mitsubishi Fuso will supply its Fuso Canter light truck to Nissan, while Nissan will make the Atlas F24 truck available to Fuso.
Nissan and Daimler also plan to produce Mercedes-Benz gasoline engines at Nissan's Tennessee factory from 2014 to be fitted on Mercedes and Infiniti models. (Reporting by Peter Dinkloh in Frankfurt and James Regan and Matthias Blamont in Paris; Editing by Alden Bentley and Helen Massy-Beresford)
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