* Chrysler targets govt debt payback by June
* Fiat to boost Chrysler stake with own cash
* Chrysler has met second milestone, announcement imminent
* Chrysler Q1 results satisfying, Japan a worry
* Share price down 1.85 percent, outperforms sector
(Adds analysts' comments, more quotes, details)
By Lisa Jucca and Stefano Rebaudo
BALOCCO, Italy, April 11 (Reuters) - Chrysler is aiming to refinance $7 billion of U.S. and Canadian government debt by June, clearing the way for Fiat to take a majority stake in the U.S. group, the companies' chief executive said.
The U.S. number three automaker, managed by Italy's biggest industrial group Fiat under a 2009 bailout, is in talks with banks for a possible term loan, bond or credit facility. It must pay back government money before Fiat, which now has 25 percent of Chrysler, can take ownership. "I believe I can do it," Sergio Marchionne, who is CEO of both Fiat and Chrysler, said at a Jeep event on Monday when asked about whether the debt would be refinanced by June.
"The conditions to take on an additional 16 percent (to take majority control) will be there," Marchionne also said.
Marchionne added that Fiat would likely use its own cash to pay for the additional 16 percent. He declined, however, to say how much that additional stake might cost.
"Marchionne proved in the past the he has outstanding skills when it comes to financial issues. I'm quite confident that he can make it," Commerzbank analyst Sascha Gommel said on Chrysler's chances of refinancing the government debt by June.
"However, the 16 percent stake would increase Fiat's leverage," Gommel said.
SECOND MILESTONE MET
Fiat has 25 percent of Chrysler and will announce a hike to 30 percent on Tuesday or in coming days as it meets a milestone linked to reaching certain sales and distribution targets, Marchionne also said on Monday.
A third milestone allowing Fiat to own 35 percent of Chrysler will only be met in the fourth quarter of 2011, the CEO reiterated on Monday. This involves the production of a new fuel-efficient car capable of reaching 40 miles per gallon.
Fiat was given management control and a 20 percent stake in Chrysler's 2009 bailout. Fiat can raise its stake to 35 percent without putting any money in if it meets the three tests designed to put the U.S. automaker on firmer financial footing. Above that level, it will have to pay.
Marchionne said last month he wanted 51 percent of Chrysler this year, most likely before a planned initial public offering of Chrysler as it would be cheaper. But he hinted taking the U.S. company public could be pushed into 2012.
He said on Monday he was still committed to getting a majority stake in Chrysler this year, but could not be certain that this would be the case given several factors at stake.
Exane BNP analyst Thierry Huon said Fiat could borrow from banks to finance the purchase of an additional 16 percent in Chrysler without needing to sell or part-sell assets.
"I don't see any major problem for financing this."
Marchionne had in the past raised the prospect of an IPO of luxury sports brand Ferrari, which Ferrari Chairman Luca Cordero di Montezemolo said on Monday could be worth 10 billion euros.
CHRYSLER'S PERFORMANCE
Asked about Chrysler's performance, Marchionne said: "I'm satisfied with what we have done in the first quarter. It's totally in line with what we have told the market. Our cash position is strong."
Marchionne said he was still confident Chrysler would confirm its $2 billion target for operating profit this year.
He said he was watching developments in Japan very carefully and said Chrysler's production would likely be hit by supply distruptions following the March 11 earthquake and tsunami.
He said Chrysler was "working on alternative arrangements" to address supply problems stemming from the Japanese situation.
Chrysler said on Wednesday that it was cutting some overtime work at some North American assembly plants due to parts shortages stemming from Japan's earthquake.
"We are watching the Japanese supply situation very, very carefully. It is going to have an impact on production," he said. "We already had some production delays because of this. We had to rush the allocation of some products based on demand."
Shares in Fiat were down 1.21 percent at 1534 GMT. The STOXX Europe 600 autos index was down 1.88 percent.
(Writing by Ian Simpson and Lisa Jucca, additional reporting by Nigel Tutt, Editing by David Cowell)