This is a 12-week randomized, double-blind, multi-center, active-controlled (open-label pioglitazone) and placebo-controlled study of tesaglitazar (0.1, 0.5, 1, 2, and 3 mg) in patients with type 2 diabetes, not adequately controlled on diet and lifestyle advice alone during the run-in period. The study comprises a 2-week enrollment period, 4 week placebo single blind run in period followed by a 12-week double blind treatment period and a 3-week follow-up period

Inclusion Criteria:

• Provision of a written informed consent
• Men or women who are 30 to 80 years of age
• Female patients: postmenopausal or surgically sterile
• Diagnosed with type 2 diabetes with C-peptide levels > 0.8 ng/mL
• Treated with diet alone or treatment with a single oral antidiabetic agent or low doses of two oral antidiabetic agents

Exclusion Criteria:

• Type 1 diabetes
• New York Heart Association heart failure Class III or IV
• Treatment with chronic insulin
• History of hypersensitivity or intolerance to any peroxisome proliferator-activated receptor agonist (like Actos or Avandia), or to other PPAR g or PPAR a and g agonists.
• History of drug-induced myopathy or drug-induced creatine kinase elevation, liver enzyme elevations, neutropenia (low white blood cells)
• Creatinine levels above 1.2 mg/dL
• Received any investigational product in other clinical studies within 30 days
• Any clinically significant abnormality identified on physical examination, laboratory tests or electrocardiogram, which in the judgment of the investigator would compromise the patient's safety or successful participation in the clinical study