updated 12/1/2006 8:36:22 AM ET 2006-12-01T13:36:22

Italy plans to reduce its 49.9 percent stake in cash-strapped Alitalia SPA as part of its efforts to turn around the nation’s flagship airline, the government announced Friday.

The government is also seeking international alliances to try to secure Alitalia’s future, and has said it will have a turnaround plan by the end of January.

Alitalia shares jumped more than 10 percent to 94 euro cents ($1.24) on the announcement, prompting the Milan stock exchange to suspend shares as is customary as a hedge against sharp gains or losses. Trading also was suspended earlier pending the announcement.

A government statement said new “industrial and financial” shareholders were needed to relaunch the airline, but did provide more details.

Enrico Letta, an undersecretary for Prime Minister Romano Prodi, told reporters the government would bring its stake below 30 percent, the news agency ANSA reported. “No stake is specified, but to give up control means to go below 30 percent,” Letta told reporters.

Letta said the government did not discuss top management during a ministers meeting on Friday.

Alitalia has reported widening losses due to higher fuel costs, competition from low-cost carriers and the impact of a series of strikes.

CEO Giancarlo Cimoli told a parliamentary committee this week that integrating Alitalia into a big international group is its only hope for survival.

Alliance talk has centered on Air France-KLM, in which Alitalia already has a small stake. But Prodi has expressed concerns and Italian Industry Minister Pierluigi Bersani said last week that he didn’t see that alliance as an optimal deal.

Air France-KLM CEO Jean-Cyril Spinetta said last week that exploratory talks between the two companies were underway, but insists Alitalia must improve its finances before partnering up with another airline.

Other potential partners are German airline Deutsche Lufthansa AG, Thai Airways International PCL, Air China and Emirates Airline.

Alitalia, which hasn’t posted a profit in the last four years, on Tuesday reported its net debt fell 6.3 percent to 937 million euros ($1.2 billion) in October from 1 billion euros ($1.3 billion) in September.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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