UPDATE 3-Toyota strengthens ties with Subaru maker Fuji Heavy

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By Nobuhiro Kubo and Nathan Layne

TOKYO, April 10 (Reuters) - Toyota Motor Corp. (7203.T: Quote, Profile, Research, Stock Buzz) said on Thursday it would almost double its stake in Subaru maker Fuji Heavy Industries Ltd (7270.T: Quote, Profile, Research, Stock Buzz) as part of an alliance aimed at more efficiently developing and producing cars.

The pact, which also involves Toyota minivehicle unit Daihatsu Motor (7262.T: Quote, Profile, Research, Stock Buzz), is seen as throwing a lifeline to Fuji Heavy as it struggles to keep pace with larger, more efficient rivals and suffers from sluggish sales.

"No one really thought that Fuji Heavy could survive on its own with things just as they are," said JP Morgan auto analyst Takaki Nakanishi. "It needed a partner. It needed to wedge itself into the Toyota group."

Automakers around the world are under intense pressure to become more efficient as rising raw materials prices, on a global shift towards smaller, fuel-efficient cars and as the rise of competition from China and India threatens profitability.

Japanese carmakers are also feeling the pinch from the yen's recent surge against the dollar, which makes their exports to the key U.S. market less competitive and slices profits when repatriated. Weakening demand in the U.S. is another concern.

Toyota hopes the deal, which includes the joint development of a sports car and supply of a compact car to Fuji, will boost its line-up and keep costs in check as it continues a global expansion that has seen it double sales in the past decade.

"Looking out three to five years, this gives us the best battle formation to compete globally," Toyota President Katsuaki Watanabe told a group of reporters after a news conference.