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* Peugeot says first GM alliance savings seen in H1
* Cash burn to at least halve from 3 bln euros last year
* Seeks labour concessions on pay, working time
* Further plant cuts may be needed - CEO
* Shares up as much as 10 pct at highest in over a year (Adds comment, details)
By Laurence Frost
PARIS, July 31 (Reuters) - PSA Peugeot Citroen improved its 2013 cash flow goal on Wednesday, saying spending cuts and an alliance with General Motors had already begun to pay off.
The struggling French automaker now aims to reduce closely watched cash consumption before restructuring costs "at least by half" from last year's 3 billion euros ($4 billion) - potentially undercutting its earlier 1.5 billion target.
Peugeot shares surged more than 10 percent to their highest in more than a year on the upgraded outlook as the company said cost-cutting had helped to contain first-half losses.
The turnaround plan is "going more quickly than expected", Chief Financial Officer Jean-Baptiste de Chatillon said as he outlined the results. "But we've still got a lot of work to do."
Peugeot is Europe's second-biggest carmaker by sales and the region's worst casualty of a brutal auto sales slump now in its sixth year. After a 5 billion euro net loss in 2012, Peugeot lost more ground in the first half with a 13.3 percent decline in European car sales - twice the market decline.
Chief Executive Philippe Varin is fighting back with spending cuts, joint vehicle programmes with new alliance partner GM and the elimination of 11,200 jobs over two years.
"The GM alliance is in the execution phase with the first purchasing savings (achieved) in the first half," Varin told analysts.
Peugeot's operating loss widened to 65 million euros from 51 million before one-off gains and charges, on a 3.8 percent revenue decline to 27.71 billion.
But Peugeot reined in its cash consumption to 51 million euros in the half from 449 million a year earlier, thanks in part to a 764 million euro cut to capital expenditure.
Before restructuring, cashflow came to a positive 203 million euros, helped by dividend payments and other gains that will not be repeated in the second half. Peugeot also cut its net loss by almost half to 426 million euros.
Peugeot shares were up 7.3 percent at 9.66 by 0755 GMT, driven partly by hedge funds scrambling to unwind negative bets on Peugeot by buying up stock to cover their short positions.
Rival Volkswagen AG also saw its shares rise after the company posted a surprise increase in second-quarter earnings, reaping the benefits of new cost-cutting technology and growing sales of luxury cars.
Peugeot's results announcement came a day after Peugeot won EU clearance for a 7 billion euro state-backed debt rescue granted last year to its Banque PSA car loans arm.
Varin also declined to answer questions about talks with Banco Santander. The two companies are discussing a finance venture that could replace the state guarantee and bring Peugeot more freedom from government interference, people with knowledge of the matter said last week.
The founding Peugeot family has offered to give up control as part of a closer tie-up with 7 percent shareholder GM or another industrial partner, sources have also said.
Peugeot also said on Wednesday it had secured more than half of the 8,000 additional job cuts announced last July, along with the closure of its Aulnay factory near Paris and downsizing of another plant in Rennes, western France.
The company confirmed it would seek labour concessions on pay and working time when French union negotiations resume in September - and is likely to need further plant cuts to trim excess capacity in a weak European market.
"We're not relying on a very significant improvement in the European market situation," CEO Varin said. "We have done in the past some shrinking of capacities on some sites ... he said. "So we know how to do it."
Peugeot has pledged to increase its average capacity utilisation to 100 percent in 2016 - representing full production in two factory shifts working 235 days a year.
The core auto division fared slightly better in January-June. A series of model launches helped trim the divisional operating loss by 29 percent to 510 million euros, even as revenue tumbled 7.5 percent.
In China, where Peugeot is about to open a fourth plant, first-half sales surged 33 percent to 278,000 vehicles and the French carmaker took a 100 million euro dividend from its joint venture with local partner Dongfeng.
Peugeot's net debt rose to 3.32 billion euros at June 30 from 3.15 billion six months earlier. ($1 = 0.7547 euros) (Additional reporting by Gilles Guillaume and Blaise Robinson; Editing by Christian Plumb and David Holmes)