* CEO sees production of 130,000 autos a year
* Fiat 500 to be produced for U.S., Latam sale
* 500 seen as key to Chrysler recovery (Recasts, adds details from news conference in Mexico City)
By Noel Randewich
TOLUCA, Mexico, Feb 8 (Reuters) - Mexico could produce up to 130,000 Fiat 500s a year, seen as key to the recovery of Chrysler in the United States, with a $550 million investment, Fiat Chief Executive Sergio Marchionne said on Monday.
A Chrysler plant outside Mexico City will begin assembling the 500 by December for sale in U.S. and Latin American showrooms, said Marchionne, the head of Fiat SpA FIA.MI, who also heads Chrysler.
"The 500 is just one example of how Fiat's experience in the small to medium vehicles segments and its expertise in fuel saving technologies will play a key role in Chrysler's revival," Marchionne said in the city of Toluca, where the plant will be built.
The investment by Chrysler will be mostly financed through a loan from Mexican development banks, he later told reporters in Mexico City.
"I don't think we are going to shrink American's tastes by introducing the Fiat 500. We are only looking for a particular space in the market for this car to occupy," he said.
Marchionne did not give production details but said the 130,000 cars a year was an ideal target, with sales going to both the United States and Latin America.
Fiat was given control of Chrysler by the Obama administration last June as part of a restructuring of the U.S. automaker in a government bankruptcy.
Under Marchionne, Chrysler is planning to more than double sales, roll out a dozen new models built on Fiat platforms and repay debt to U.S. taxpayers over the next five years.
"The 500 is expected to stir excitement and certainly will help us position the group in the forefront of the industry in terms of innovation and fuel efficiency," Marchionne said.
Chrysler is struggling to rebuild trust among American consumers by revamping its aging, truck-heavy lineup through 2014, with a dozen new vehicles built on Fiat platforms.
The retro-inspired 500 will be many Americans' first exposure to Fiat's cars and will be sold in Chrysler showrooms.
Marchionne's plan also calls for Chrysler to break even on an operating basis in 2010 and on a net basis by 2011, in part by regaining market share lost in its slide toward bankruptcy. (Editing by Carol Bishopric)