UPDATE 1-FCA, France reach tentative agreement on Renault merger -sources

By Laurence Frost and Giulio Piovaccari

(Adds details of talks, company background)

By Laurence Frost and Giulio Piovaccari

PARIS/MILAN, June 5 (Reuters) - Fiat Chrysler Automobiles NV has reached a tentative agreement with France on the terms of its proposed merger with Renault, two sources told Reuters, as the French carmaker's board met to consider the bid late on Wednesday.

The French state, which owns 15% of Renault, had been seeking more influence over the merged company, firmer job guarantees and improved terms for Renault shareholders in return for blessing the $35 billion tie-up.

Renault, FCA and the French government all declined to comment on the ongoing board discussions.

The new understanding between Paris and FCA, nine days after the Italian-American carmaker pitched its offer, does not mean that Renault board approval is automatic, the two sources close to the talks also cautioned.

Renault directors meeting at the company's Boulogne-Billancourt headquarters outside Paris may decide on Wednesday whether to approve a memorandum of understanding or framework agreement that would begin the long process of a full merger.

FCA has been locked in talks with Renault and the French state over its bid to create the world's third-biggest carmaker. France has broadly welcomed the deal, on condition it guarantees Renault's domestic blue-collar jobs and plants. (Reporting by Laurence Frost in Paris and Giulio Piovaccari in Milan; Additional reporting by Joe White and Gilles Guillaume; Editing by Susan Fenton and Matthew Lewis)