UPDATE 2-M'bishi, Peugeot strike electric car alliance -report

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TOKYO, June 16 (Reuters) - Mitsubishi Motors Corp (7211.T) will tie up with France's PSA Peugeot Citroen (PEUP.PA) in the production of electric vehicles, supplying technology and next-generation batteries, a newspaper reported on Monday.

The report in the Nikkei business daily boosted Mitsubishi Motors stock 2.5 percent, while shares in its partner for lithium-ion batteries GS Yuasa Corp (6674.T) surged 10.4 percent.

The two automakers may also look at forming a joint venture to build electric vehicles, the paper said.

Electric vehicles are moving into the mainstream as consumers try to economise on fuel amid record-high oil prices. Mitsubishi Motors has been at the forefront of this movement and is planning to commercialise a pure electric vehicle by 2010.

A spokesman for Mitsubishi Motors said the automaker was looking at wide range of potential tie-ups in various fields, but that no decisions had been made.

Mitsubishi will supply Peugeot with technology relating to the conversion of electricity into drive power and the prevention of batteries from overheating, the paper said.

It will also supply lithium-ion batteries, which can store more energy in smaller packages and are seen as crucial for extending the cruising distance of purely electric vehicles.

Mitsubishi and Peugeot have worked together in other areas.

They are planning a joint venture in Russia to produce cars from 2011, and have an operational tie-up under which Mitsubishi Motors builds 4X4 vehicles such as the C-Crosser and Peugeot 4007.

Mitsubishi Motors stock ended up the morning session at 206 yen while GS Yuasa, the most active stock on the main board by volume, rose to 531 yen. (Reporting by Edwina Gibbs and Nobuhiro Kubo; editing by Sophie Hardach)