Libya has agreed to set up a joint fund of as much as $500 million with Italian bank Mediobanca to invest in Italian companies, the chairman of the North African country's $65 billion sovereign wealth fund said.

The fund is the latest initiative by Libya to expand its business interests in Italy, where it has already taken stakes in No.2 bank UniCredit and oil company Eni amid a global downturn that has depressed share prices.

Speaking to reporters at a dinner in Rome in his honour attended by a veritable Who's Who of Italian business, Libyan Investment Authority chairman Abdulhafid Zlitni said the deal had yet to be signed but had been agreed in principle.

A spokeswoman for Mediobanca declined to comment. The Italian bank has been at the centre of Italian finance since it was founded after World War Two and has been adviser to some of Italy's biggest corporate deals.

Zlitni, who also is Libya's planning minister, said the fund was likely to be between $250 million and $500 million in size and would consider investments in distressed assets.

He singled out construction, pharmaceutical, information technology and real estate as among the sectors that could be of interest to the fund.

'They (Mediobanca) will provide their share and expertise and we will provide assistance to the management and the cash,' Zlitni said.

Mediobanca also will funnel cash into the fund, though the structure of the vehicle and other details have yet to be decided, Zlitni said.

Mediobanca's top executives - Chairman Cesare Geronzi and CEO Alberto Nagel - accompanied Zlitni and other Libyan officials to a meeting with top Italian government officials at Prime Minister Silvio Berlusconi's residence in Rome on Thursday, two sources close to the matter previously said.

Libya's investment vehicles, flush with cash from a surge in oil prices in previous years, have been eyeing stakes in Italian companies with a view to generating returns over the long-term.

Libya's central bank, which already holds a 4.6 percent stake in UniCredit, came to the bank's rescue earlier this week by helping plug a shortfall in its capital raising efforts
after another shareholder backed away from the move.-Reuters