Fiat's $4.35 billion deal to gain full control of Chrysler Group LLC sent its shares to a near 2-1/2-year high on Thursday, despite doubts over whether the Italian carmaker could use the merger to cut losses in Europe.

Investors welcomed the deal struck by Chief Executive Sergio Marchionne, under which Fiat will buy the 41.46 percent of the No 3 US automaker it does not already own, without raising funds from the stock market.

Marchionne, who has run both companies since Chrysler's 2009 US government-funded bankruptcy restructuring, aims to merge the two into the world's seventh-largest auto group.

However, analysts were concerned that the deal will increase Fiat's already heavy debt burden, despite a relatively low price negotiated by Marchionne after more than a year of talks.

Fiat shares rose as much as 16 percent to levels last seen in August 2011 after the deal, which aims to combine the two automakers' resources and rejuvenate Fiat's product line-up. It was the stock's biggest intraday gain since April 2009.

Fiat will buy the stake in the US group from a retirees' healthcare trust affiliated to the United Auto Workers union, with Chrysler putting up most of the funding.

However, Citigroup analysts said Fiat's debt would become the highest for any European motor manufacturer.

Italy investments

It remains to be seen whether the merger will cut Fiat's losses in Europe, where it had promised to break even by 2016. Fiat's plan depends on its ability to share technology, cash and dealer networks with Chrysler easily and cheaply.

Chrysler and Fiat currently have to manage their finances separately. A full merger will make it easier - but not automatic - to combine the cash pools of the two companies, giving Fiat more funds to expand its product line-up.

Chrysler's booming US sales are now a profit center for Fiat, helping to offset losses in Europe. The deal raises expectations that investments could be channeled into underused Italian plants to launch new models in what analysts expect to be a steadying market from 2014.

Italy's unions and government hope the deal will boost jobs and cut state spending. Several Fiat plants have been working only a few days a month, with thousands of workers currently in state-backed temporary lay-off schemes to avoid job losses.