Progress has been made to keep Chrysler out of bankruptcy protection as the Treasury Department has reached a tentative agreement with four of the troubled U.S. automaker's major debt holders.

Under the agreement, the four banks will forgo claims to their portion of Chrysler's 6.9-billion-dollar debt in exchange for 2 billion dollars in cash when the deal closes, the Associated Press reported on Tuesday, quoting two people familiar with the talks.

"We view this as a huge step forward," said one of the people, who spoke on condition of anonymity because the agreement has not been formally announced.

The Treasury needs to persuade all 46 banks and hedge funds that hold Chrysler debt to go along. If not, a bankruptcy filing could still be possible for the nation's third largest automaker, the people said.

If the remaining debt holders agree to the deal, that leaves a partnership with Italian automaker Fiat Group SpA as the lone remaining hurdle to Chrysler meeting a government-imposed deadline on Thursday to complete a number of major restructuring steps and become eligible for further government aid, according to the AP report.

Two days ago, the United Auto Workers (UAW) union reached a deal with Chrysler that would give it a 55-percent stake in the company and assurances over issues like health care.

The accord will help pave the way for Chrysler to forge an alliance with Fiat before the Thursday deadline to obtain additional rescue loan from the government.

Chrysler has been living off 4 billion dollars in government funds since the start of the year and would likely need more to avoid bankruptcy.

Also on Tuesday, a top Fiat executive said he was "confident" ahead of an announcement due on Thursday on a planned alliance between Fiat and Chrysler that could save the struggling U.S. car maker from possible bankruptcy, according to news reports.

"We are confident but we have to wait until Thursday and respect the decision that will be taken. Negotiations are now in the hands of the U.S. task force, the auto working group put together by President Barack Obama," John Elkann, the deputy head of Fiat, was quoted as saying.

(Xinhua News Agency April 29, 2009)