ZASTAVA AUTO DEAL IS LIKELY CASUALTY OF YUGOSLAV WAR.

The war in Kosovo looks certain to end Yugoslavian automaker Zastava's hopes of linking with a top European manufacturer.

Zastava, which makes Yugo cars, has been desperate to reach a partnership agreement with PSA/Peugeot-Citroen SA or Fiat S.p.A. to turn around its ailing fortunes. Talks with PSA/Peugeot-Citroen on a deal to assemble the Peugeot 106 in Serbia had reached an advanced stage but have been frozen by the political situation.

Zastava produced just 14,000 passenger cars last year - down from the 200,000 units in 1990 before the breakup of the former Yugoslavia. The company's auto division still employs 26,000 workers in Kragujevac, which is 60 …