2nd UPDATE: Renault-Nissan May Get 50% Stake In Russia's AvtoVAZ

Russia on Tuesday gave its backing to French car maker Renault SA (RNO.FR) and its Japanese alliance partner Nissan Motor Co. (NSANY, 7201.TO) building up a 50% stake in car maker OAO AvtoVAZ (AVAZ.RS).

Against the background of an increased appetite for foreign investment in Russia, Prime Minister Vladimir Putin said the Renault-Nissan alliance could raise its holdings in AvtoVAZ to 50%, a possibility the foreign auto makers are considering, Renault Chief Executive Carlos Ghosn told Russian newswires after a meeting with Putin. Renault acquired a 25% stake in AvtoVAZ in 2008 for $1 billion.

Separately, AvtoVAZ shareholder Troika Dialog, a Moscow investment bank, said in a statement Tuesday it views the idea of Renault-Nissan holding a 50% stake positively and that it may sell shares to Renault-Nissan if the price is "acceptable."

AvtoVAZ, Russia's biggest car maker, plans to increase sales in Russia to 1.6 million cars a year by 2014, Ghosn said Tuesday, according to a transcript on the Russian government website.

New car sales in Russia will top four million cars a year, and Renault-Nissan and Lada cars together now command 40% of the Russian market, including 30% for Lada, Ghosn said.

Ghosn also confirmed that Renault and Nissan will be using an ultra-low-cost vehicle platform made by AvtoVAZ.

Renault, Nissan and AvtoVAZ have an industrial alliance under which AvtoVAZ is using the alliance's technical know-how to revamp its aging Lada product line. Renault and Nissan, meanwhile, are benefiting from industrial capacity at AvtoVAZ's sprawling factory complex at Togliatti to assemble cars there.

"The government wants to make Russian car makers competitive, and it understands that it's not possible without a hand from strong foreign partners," said Troika Dialog car market analyst Mikhail Ganelin. "So what Putin said at the meeting with Ghosn is quote logical."

A 50% stake in AvtoVAZ will help Renault develop a full-blown partnership with the Russian car maker, which will resemble the one it has with Nissan, Ganelin said.

-By Nadia Popova and William Mauldin, Dow Jones Newswires; +7-495-232-9192; nadia.popova@dowjones.com

(Alexander Kolyandr contributed to this article.)

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