Frankfurt - Giant German carmaker Daimler AG reported Tuesday a dramatic slump in earnings amid reports the maker of luxury Mercedes-Benz vehicles is considering forging closer co-operation with arch rival BMW AG.

Stuttgart-based Daimler said its 2008 profit before interest and tax fell from 8.7 billion euros (11 billion dollars) in 2007 to 2.4 billion euros last year and predicted a tough year ahead as the global car sector faces up to the fallout from the world economic downturn.

But after falling sharply following the earnings' announcement Daimler's shares down by about one per cent at 23.30 euros in early morning trading in Frankfurt.

In particular, Daimler's results were hit by charges caused by the disposal of its holding in the troubled US carmaker Chrysler. (dpa)