UPDATE 1-Dongfeng to reduce PSA stake in merger deal with Fiat-sources

(Updates to add Dongfeng reached for comment, shares on trading halt)

MILAN, Dec 17 (Reuters) - China’s Dongfeng Motor will have a reduced stake of around 4.5% in the new group resulting from the merger between Peugeot owner PSA and rival Fiat Chrysler, two sources said on Tuesday.

Earlier the board of PSA approved a binding memorandum of understanding for a $50 billion tie-up between the two groups.

Dongfeng has a 12.2% equity stake in PSA and under a preliminary agreement announced in October would have had about half of that in the combined entity with FCA.

Dongfeng did not response to requests for comment. The company halted trading of its shares on Wednesday.

According to the binding deal approved by PSA board on Tuesday, FCA’s robot unit Comau will remain within the combined group rather than being spun off as was originally planned in October, the sources said.

The two groups will then jointly decided how to extract value from Comau. (Reporting by Gianluca Semeraro, writing by Giulio Piovaccari, Additional Reporting by Yilei Sun in Beijing; editing by Silvia Aloisi)