* Equity investment by the state not on agenda-Ayrault
* Company “must not disappear”, budget minister says
* Peugeot announced 4.1 bln eur non-cash writedown
* Shares up 0.8 pct (Recasts, adds background)
By Catherine Lagrange and Yann Le Guernigou
GRENOBLE, France, Feb 8 (Reuters) - France’s Socialist government said it would do whatever it took to keep ailing carmaker PSA Peugeot Citroen afloat though the prime minister said the state had no current plan to buy a stake.
The comments came a day after Peugeot, suffering falling sales in a depressed European car market, highlighted the scale of its woes by taking a 4.1 billion euro ($5.5 billion) writedown on its plants and other automotive assets.
The future of Peugeot - maker of everything from the presidential limousine to the white vans favoured by small businesses - is sensitive given its status as a flagship of French industry, accounting for two-thirds of car production at a time when the jobless rate is at a multiyear high.
“Regarding the purchase of a stake in this company, it is not on the agenda because PSA is not asking for it,” Prime Minister Ayrault told reporters in Grenoble, southeast France, where he was giving a speech on pension reforms.
“We do have a tool, the FSI (France’s sovereign-wealth fund), which can if necessary take a stake. But today this question is not being looked at,” Ayrault said.
A spokesman for the FSI said the organisation is not working on any plan to invest in Peugeot. Peugeot declined comment.
Although the writedown was a non-cash accounting item that does not affect Peugeot’s liquidity or solvency, it reflected Europe’s worsening market outlook and prompted speculation the state might intervene.
Earlier, Budget Minister Jerome Cahuzac said in a TV interview France might consider investing in Peugeot. “It’s possible,” Cahuzac told BFM Television. “This company must not and cannot disappear and we must do what it takes for this company to survive.”
Yet a source in the finance ministry played down Cahuzac’s comments, saying the priority for Peugeot was to pursue its recovery plan and strengthen its alliance with General Motors .
Peugeot shares lost most of their early gains and were up 0.8 percent at 5.92 euros by 1300 GMT, not far from a more than 20-year low of 4.32 euros set at the end of last year.
“The writedowns reflect Peugeot’s difficulties, namely that it concentrated too much on growing in Europe and ended up missing out on international growth and alliances,” said Harry Wolhandler, chief executive of Amilton Asset Management.
“We’re staying away from the stock for now.”
Peugeot could have other fundraising options before it has to resort to state help. It could sell its stake in parts maker Faurecia or even its financing arm Banque PSA, but such disposals would do little to address the group’s underlying problems.
Unlike domestic rival Renault, the French state has no holding in Peugeot. France nationalised Renault after World War Two and still holds a 15 percent stake. Peugeot remained private and is 25 percent owned by the Peugeot family.
Peugeot is one of the companies worst hit by Europe’s protracted sales slump. It is cutting 8,000 jobs and closing a factory to stem losses approaching 200 million euros a month. The company has pledged to return to breakeven late in 2014.
The Peugeot group has already had one big helping hand from the government, in the form of a 7 billion euro loan guarantee agreed late last year for Banque PSA, which is still awaiting EU approval.
Traders and analysts said the impact of the writedown was offset by the fact it was a non-cash charge and by speculation the state could support the company’s capital base.
“The (writedown) measure will not hit cash flows, nor will it affect liquidity or solvency,” a Paris-based trader said. “It does however show that the outlook for a recovery in the European market is more pessimistic than it was six months ago.”
The CGT union said the government’s job was not to come to the rescue of Peugeot’s shareholders but to support employees’ demands to keep all plants open and to give guarantees on jobs.
The Paris-based company said the writedown did not affect plans to reduce cash burn by half this year or its earlier forecast that net debt would be cut to 3 billion euros for the end of 2012. ($1 = 0.7469 euros) (Additional reporting by Christian Plumb, Matthieu Protard, Brian Love and Alexandre Boksenbaum-Garnier; Writing by Lionel Laurent; Editing by David Holmes)