* PSA 2012 global sales plunge 16.5 pct
* Peugeot targets 2013 sales growth excluding CKD vehicles
* European market share down 0.5 points to 12.7 pct
By Laurence Frost
PARIS, Jan 9 (Reuters) - PSA Peugeot Citroen's global car sales fell sharply in 2012 as the struggling French automaker recorded its worst European performance in years.
The company's 16.5 percent drop in worldwide sales last year also reflected its withdrawal from Iran.
The car industry has been battling a sales slump in Europe, where fallout from the euro zone crisis has hit consumer demand. Peugeot's sales outside the region have not grown quickly enough to compensate.
The European car market is at its lowest in close to two decades, and Peugeot's sales performance in the region in 2012 was the worst in at least the same period. The company forecast a further 3-5 percent decline for the market this year.
"If this view of the world should turn out correct, we see little reason why the financial situation at PSA should improve at all during the year," Credit Suisse analyst Erich Hauser said.
Paris-based Peugeot is shedding assets, cutting 10,000 jobs and closing production capacity to stem mounting losses. Chief Executive Philippe Varin has warned that it won't return to profit before 2015.
The company said its global sales volume dropped to 2.97 million vehicles in 2012 from 3.55 million a year earlier, weighed down by a collapse in southern Europe, where Peugeot is heavily exposed.
"PSA Peugeot Citroen has felt the full force of the sustained decline in Europe's automobile markets," brands chief Frederic Saint-Geours said. France, Spain, Italy and Portugal - the markets worst hit in Europe's sales slump - still account for more than half of Peugeot's regional business, according to company data.
Peugeot also pledged to return its regional market share to 13 percent, after a 0.5-point slide to 12.7 percent last year.
Sales in China, where the carmaker is adding production with a second joint venture, nonetheless advanced 9.4 percent to 442,000 vehicles. China's auto market will expand 7-8 percent this year and Russia's about 5 percent, Saint Geours predicted.
Peugeot also reiterated its goal of generating at least half of its sales outside Europe by 2015.
The global sales plunge was compounded by Peugeot's decision early last year to halt sales of so-called CKD car kits for final assembly in Iran, which wiped 313,000 vehicles from its total. The move was a response to international sanctions restricting financial transactions with the country.
Excluding Iran, Peugeot said it recorded a 8.8 percent global sales decline to 2.82 million vehicles last year. This exceeded an 8.7 percent decline in the 2008 financial crisis. It said on Wednesday it hoped to return to volume growth in 2013.
Peugeot shares were down 0.7 percent at 6.17 euros at 1334 GMT. The stock has fallen 44 percent over the past 12 months.
"The tough demand outlook for PSA in Europe does make it hard for it to stem cash burn," Citi analysts said in a note.
CEO Varin's earlier pledge to reduce negative cash flow by half this year "continues to seem unrealistic" in light of the sales performance, they said.
The French government confirmed on Wednesday it had submitted a state-backed Peugeot refinancing deal for European Union approval.
The Brussels review will not alter the terms of the 18.5 billion euro ($24.2 billion) debt rescue announced in October, Finance Minister Pierre Moscovici said.
The package, including up to 7 billion euros in state loan guarantees, was initially presented as a pure debt refinancing for the carmaker's lending arm that required no approval.
But EU Competition Commissioner Joaquin Almunia said last month it amounted to restructuring aid and would have to be submitted for vetting under state aid rules.
Peugeot also dismissed reports that it was preparing a full or partial sale of 57.4 percent-owned auto parts subsidiary Faurecia.
"This is not on the agenda," Saint Geours said.
Full-year 2012 European registrations figures to be published on Jan. 16 are expected to show regional auto sales at their lowest in about 20 years.