FRENCH car maker PSA Peugeot Citroen said yesterday it has signed an agreement with Mitsubishi Motors Corp, one of Japan's biggest auto makers, to set up a factory in Russia.

The joint venture will make mid-sized sport utility vehicles under the Citroen, Peugeot and Mitsubishi brands, and mid-sized cars for Peugeot and Citroen at a factory in Kaluga, a city southwest of Moscow. Chief Executive Christian Streiff told reporters in Paris that Peugeot Citroen will invest 300-350 million euros(US$460-540 million) for a 70-percent share in the project, which the French car maker will manage.

Peugeot Citroen is convinced Russia will "very quickly become the biggest market in Europe," he told a news conference.

Foreign auto makers have rushed to open assembly plants in Russia to reach a growing number of consumers. Soaring world oil prices have boosted the country's economy, enabling more people to buy cars.

Ford, Toyota, General Motors, Kia Motors and Peugeot Citroen's fellow French rival Renault SA have all broken ground on new or expanded manufacturing facilities in Russia in recent years.

Production on the new Kaluga site is scheduled to start in 2011 for a capacity of 160,000 vehicles, the car maker said. Of those, 110,000 will be mid-sized vehicles and 50,000 will be sports utility vehicles, Streiff said.

For Russia, the new factory will provide 3,000 jobs, said Didier Aleton, who will manage the factory for Peugeot Citroen.

Partnering with Mitsubishi helps cut costs and make the venture more profitable for Peugeot Citroen while deepening its relationship with the Japanese car maker, he said.