UPDATE 1-Navistar names new board members, avoids proxy fight

* Mark Rachesky, Icahn nominee named to board

* Third nominee to be named later

* Investors agree not to stage proxy fight at 2013 meeting

* Shares up 5 pct

(Adds details on agreement, background, byline, stock move)

By Nick Zieminski

Oct 8 (Reuters) - Navistar International Corp agreedto appoint three new members to its board, avoiding a proxyfight with activist investors Carl Icahn and Mark Rachesky, whohave demanded changes at the U.S. truck and engine maker.

Navistar shares gained 5 percent to $22.28 in early tradingon Monday following the news.

The company said Vincent Intrieri, an Icahn nominee, andRachesky had been named to the board. A third nominee, agreed onby Rachesky and Icahn, will be named later. All three nomineeswill replace current board members, keeping the board's sizesteady at 10 members.

Icahn and Rachesky have agreed not to stage a proxy contestat the 2013 annual meeting, the company said. Navistar typicallyholds its shareholder meetings in February.

Icahn and Rachesky, a former Icahn adviser, each own justunder 15 percent of Navistar, tying them as its second-largestinvestors. Navistar in June adopted a poison pill anti-takeoverdefense triggered by a 15 percent holding.

Icahn had criticized the company's product strategy and itsappointment of a new CEO, Lewis Campbell, and had demandedrepresentation on the board. Rachesky's MHR Fund Management LLChad also said it wanted to discuss the company's operations.

Last month, Navistar accused Icahn of "threats, attacks anddisruptions" after the billionaire investor said shareholdersshould have been consulted about the hiring of Campbell.

Navistar's largest shareholder is Franklin Resources Inc, which has a 16.3 percent stake amassed before thecompany adopted its poison-pill defense.

Navistar has begun cutting costs and may sell assets underCampbell, who replaced ousted CEO Dan Ustian in August. Thecompany has said it is focused on righting its North Americanbusiness, which stumbled over the past year as it failed to winU.S. regulatory approval for a new diesel engine technology.

Analysts say Navistar may sell its Monaco Coach recreationalvehicle arm, which it bought out of bankruptcy in 2009, and itsmilitary truck unit.

With its new diesel technology, Navistar was trying to limitemissions of the greenhouse gas nitrogen oxide without using theadditive urea.

Navistar has abandoned that effort, saying it will insteadbegin selling trucks with engines from Cummins Inc earlynext year.

(Additional reporting by A. Ananthalakshmi in Bangalore;Editing by Saumyadeb Chakrabarty and John Wallace)

((nick.zieminski@thomsonreuters.com)(+1 646.223.6162)(ReutersMessaging: nick.zieminski.thomsonreuters.com@reuters.net))