(Adds Fiat response to rumours, Chinese media report, Chrysler statement, details, updates shares)
LONDON/MILAN Aug 5 Shares in Fiat fell more than 4 percent on Tuesday, with three traders citing a Chinese press report about a competition probe targeting the Chinese operations of Chrysler, the U.S. carmaker wholly owned by Fiat.
China National Radio, which did not cite its sources, said the Chinese anti-monopoly National Development and Reform Commission in Shanghai was close to wrapping up a probe into suspected monopolistic practices at Chrysler. The radio report said Chrysler would be punished in the near future.
Chrysler China put out a statement later on Tuesday saying it was cutting the price of its flagship Jeep Grand Cherokee SRT8 and Grand Cherokee 5.7-litre Summit models by 65,000 renminbi ($10,500) and 45,000 renminbi respectively, in response to the investigation.
Chrysler will also cut prices across 145 high-value and high volume warranty parts, including headlamps, outside mirrors and starters by 20 percent, the statement said.
Daphne Zheng, Managing Director of Chrysler Group China Sales Limited, said the price adjustments were voluntary and the company would "look for additional opportunities to proactively improve our competitive offer in the Chinese market".
Fiat's stock closed down 3.1 percent at 6.85 euros. The stock had been halted from trading earlier in the session and had slumped as low as 6.56 euros.
Daimler AG's luxury brand Mercedes-Benz is another car company being investigated by the NDRC.
China is intensifying efforts to bring companies into compliance with an anti-monopoly law enacted in 2008, having taken aim at industries as varied as milk powder and jewellery.
Two traders also said the Fiat share price decline might be partly linked to concerns that shareholders who voted against Fiat's merger with Chrysler would exercise their right to sell the stock, potentially jeopardising the tie-up.
The carmaker issued a statement on Tuesday saying market rumours about a significant number of its shareholders already having exercised their exit rights were unfounded.
"These rumours are groundless," Fiat said. "The term for the exercise of the cash exit rights has begun today and Fiat has not received any notices of exercise of the cash exit rights."
Fiat shareholders approved the merger with a two-thirds majority of those present at a meeting on Friday, paving the way for a U.S. listing which the world's seventh-biggest auto group hopes will help fund a turnaround plan.
About 8 percent of all of Fiat's investors voted against the merger. Should enough of them exercise their rights to sell by Aug. 20, and the total sum that needs to be paid for those rights to shareholders and creditors exceed 500 million euros ($669 million), the merger could still fail, Fiat has said.
However, analysts and management said chances of this happening were slim.
"We believe the sell-off is based on a misunderstanding regarding the merger and concerns that the merger will not proceed," London-based ISI Group analyst George Galliers said.
($1 = 0.7473 Euros) ($1 = 6.1705 Chinese Yuan) (Reporting by Francesco Canepa, Samuel Shen, Blaise Robinson, Agnieszka Flak, Andrew Winterbottom, Bernie Woodall; Editing by Lionel Laurent and David Clarke)