UPDATE 1-Fiat to produce cars in China with Guangzhou Auto

* Producing cars from second half of 2011

* Total investment over 400 million euros

* First model will be Linea sedan

(Adds details from statement)

ROME, July 6 (Reuters) - Italian car maker Fiat SpA (FIA.MI) agreed a 50-50 venture deal with China's Guangzhou Automobile Industry Group to produce cars and engines in China from the second half of 2011, with a total investment of 400 million euros ($559.1 million).

Fiat, which has just taken a 20 percent stake in U.S. auto maker Chrysler, said the plant would produce 140,000 cars a year and around 220,000 motors after a first phase of development.

It said output could be increased to a maximum of 250,000 cars and 300,000 engines per year. The first model to be produced will be the Linea small family car.

Fiat has long sought a strong partner in China, where car sales are booming in contrast to slack demand in Europe and the United States.

It pulled out of a joint venture with Nanjing Automotive in 2007, then in March 2009 a planned venture with Chery Automobile Co was postponed by the Chinese company.