CHIBA, Japan, Oct 24 (Reuters) - Daimler AG Chief Executive Dieter Zetche said on Wednesday that cooperation with German rival BMW AG was a possibility, including the sharing of engines.

"We are entertaining discussions with a number of carmakers, including BMW," Zetsche told a group interview at the Tokyo Motor Show.

"No decision has been made...but going forward, I do not exclude cooperation, including in parts and other areas, with BMW," he said.

German magazine Auto Bild reported last week that Daimler was planning to use four-cylinder direct injection engines developed by BMW's Mini brand and built by PSA Peugeot Citroen in the next generation of Mercedes-Benz compact cars.

The magazine, without citing sources, said Daimler intended to use the engines in the new B-Class compact from 2011, diminishing the prospects for using a platform of Italy's Fiat for Mercedes compact cars.

Zetsche said any decision on cooperating with BMW would probably not be made this year, but he added that cooperation in vehicle platforms with other carmakers was unlikely.

Daimler and BMW already cooperate in bringing out dual-mode hybrids together with General Motors Corp

Daimler this year sold an 80 percent stake in Chrysler, ending a failed $36 billion merger that many hailed at the time
as a recipe for success through economies of scale.

Asked whether the loss of volumes would put Daimler at a disadvantage to behemoths like Toyota Motor Corp and GM, Zetsche said Daimler was financially sound, profitable and still big enough to succeed in the increasingly competitive industry.

"Certainly, economies of scale help. But it's not a necessary prerequisite. We have 100 billion euros in revenues. We are definitely large enough to be a very successful company."

Daimler is targeting a 10 percent operating profit margin for the Mercedes-Benz passenger car division by 2010, up from around 8 percent targeted for this year.

In the first nine months of the year, Mercedes-Benz, the world's second-biggest premium carmaker after BMW, achieved a 0.9 percent increase in vehicle sales to 942,300 cars.

The group includes Smart minicars and super-luxury Maybach limousines.