"We believe this tie-up will become one of the foundation stones that will help us win out over competitors," Toyota president Fujio Cho told at a news conference.

The companies said they would be cooperating in engine development, motor Sports and boats.

The world's third largest automaker, Toyota, said it plans to buy the shares from Yamaha Motor's parent company Yamaha Corp the maker of musical instruments, for 10.5 billion yen ($97.6 million). In return, Yamaha Corp and Yamaha Motor would each buy 500,000 shares in Toyota from the market."Yamaha Motor is a company with strong technical prowess, with experience in F1 racing and marine products and we want to strengthen our ties with the firm," Cho said.

Analysts said both firms would benefit with Toyota, which hopes to enter the premier racing field for the first time from 2001, able to tap into Yamaha's eight years of Formula One experience and Yamaha able to draw on Toyota cash.

"The scope for cooperation is reasonably broad with Yamaha being the main beneficiary," said an auto analyst at Jardine Fleming Securities, Stephen Usher. "It's certainly not bad for Yamaha in any sense...to have a deep pockets partner like Toyota." Yamaha may also gain access to Toyota's global distribution network making it more competitive against arch rival Honda Motor Company, the world's biggest motorcycle manufacturer, he said.At Toyota's current share price, the Yamaha group investment would be worth around 4.34 billion yen. Yamaha Motor shares jumped on reports of the impending deal, closing up 75 yen or 9.09 per cent at 900 yen.

Toyota shares climbed some 100 yen in intraday trade but ended down 10 yen or 0.23 per cent to 4,340 yen. The formal announcement came after the close of trade.

Yamaha supplies engines to Toyota for vehicles such as its Altezza Sports car, with 55,000 sold to the auto giant last year, and supplied engines to various Formula One teams from 1989 to 1997.

Its relationship with Toyota goes back to 1966 when the two jointly developed the Toyota 2000 GT Sports car - a legendary vehicle for Japanese motor sport fans. As such, the two were widely expected to work together on F1 racing but analysts were a little surprised to see Toyota take a stake in the motorcycle maker.

Most analysts speculated that the equity stake was result of a request from Yamaha Corp, which is restructuring and is likely to post weak earnings this year.

The musical instrument maker is expected to post a current loss of 1 billion yen in the year to March 31 showed an average of eight brokerage estimates collated by First Call/Thomson Financial. Yamaha Corp said it would use the 10.5 billion yen from Toyota to buy Toyota shares and possibly to cut the shortfall in its pension reserves.