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* Goldman becomes only second broker with 'buy' rating
* High profile upgrade catches short-sellers off guard
PARIS, July 4 (Reuters) - PSA Peugeot Citroen's stock won a rare vote of confidence from a major broker on Thursday, surging nearly 8 percent after Goldman Sachs recommended buying shares in the troubled car maker.
Goldman Sachs said a Reuters report that the Peugeot family might be willing to cede control of the company could shift the market's focus to a "sum of the parts" valuation.
The investment bank lifted its rating on the stock to 'buy' from 'neutral' and added it to its 'conviction list' with a share price target of 9 euros, making it one of only two bullish analyst recommendations among the 24 broker ratings on Peugeot tracked by Thomson Reuters.
At 0900 GMT, the stock was up 7.8 percent in brisk volume, trading at 6.71 euros.
Apart from Goldman, only one broker has a 'buy' rating on the stock - Juergen Pieper from Germany's Metzler Equities - while 11 have 'sell' ratings and 11 have 'hold' ratings, according to Thomson Reuters data.
"We have long seen PSA as a poorly positioned, Europe-centric autos maker needing a strategic solution," Goldman analysts wrote in a note.
"Recent Reuters reports that the Peugeot family might be willing to cede control of PSA point to a potential catalyst that might encourage the market to focus on a SOTP (sum of the parts) valuation."
Last week, sources told Reuters the Peugeot founding family had offered to give up control of the French automaker as it tries to revive plans for a closer tie-up with U.S. carmaker General Motors Co.
"We believe that a clear plan to restructure the business would allow the market to revalue PSA's automotive business to 15 percent EV/sales (enterprise value-to-sales) from 3 percent currently," the Goldman analysts wrote.
Peugeot has been hit hard by a slump in European car sales, burning 3 billion euros ($3.89 billion) in operating cash last year while asset writedowns swelled its net loss to 5 billion euros.
Traders said on Thursday Goldman's upgrade caught hedge funds off guard, triggering a wave of short covering on the stock.
Hedge funds have been betting on falls in Peugeot's shares, making it one of the biggest short-selling targets in Europe in the past year. According to data from Markit, 10.2 percent of Peugeot shares outstanding are out on loan.
Shares in French car maker Faurecia - in which Peugeot has a controlling stake - were up 5.3 percent on Thursday, a rally fuelled by Goldman analysts' comments about a potential spin-off. ($1 = 0.7709 euros) (Reporting by Blaise Robinson. Editing by Jane Merriman)