UPDATE 1-France builds stake in Valeo in bid to neutralise activist fund

* France raise stakes above that of activist fund Harris

* French government’s Bpifrance intends to support Valeo’s CEO

* Bpifrance to get a seat on Valeo’s board in coming weeks (Adds details)

PARIS, April 29 (Reuters) - France has raised its stake in car parts group Valeo to just above 7 percent through state bank Bpifrance, as it looks to protect leading companies from activist shareholders.

Bpifrance said on Monday it had bought more shares in Valeo to take its direct stake to 5.2 percent from 2.99 percent. Combined with a 2.14 percent stake in Valeo held by Caisse des Depots (CDC), another French state financial entity that controls Bpifrance, the state now owns 7.34 percent of Valeo.

“We support the CEO’s current strategy,” Bpifrance Chief Executive Nicolas Dufourcq told reporters. “We are not there to challenge the management.”

The government’s stake in Valeo is now higher than the one held by activist fund Harris Associates.

Dufourcq also said Bpifrance was expecting to hear consolidation proposals from Peugeot maker PSA Group, in which it holds a 12.2 percent stake, following reports that the carmaker was exploring a tie-up with Fiat Chrysler .

“We will see,” Dufourcq said when asked about the unconfirmed reports. “We’re waiting for management’s proposals.”

There is increasing scrutiny in France over the role of activist investors, which have become more active in Europe, buying stakes in companies they consider are underperforming and pushing for changes.

The practice has been common in the United States for many years but slower to take off in Europe as big stakes held by founding families or even the state proved a deterrent.

French Finance Minister Bruno Le Maire said this month he was considering setting up legal tools to help the management in French companies resist activists.

He suggested a way to deter activists would be by allowing the government to buy stakes in companies deemed strategic.

Dufourcq previously said his fund had 2 billion euros to fend off potential activist attacks on French firms.

Bpifrance is due to get a seat on Valeo’s board in the coming weeks, he said.

Paris-based Valeo, whose products include fuel-efficient transmissions and autonomous driving sensors, is reining in investment after a series of profit warnings and weaker orders.

Valeo shares, which are down almost 40 percent over the past 12 months, were trading 1.8 percent higher at 33.48 euros at 0825 GMT.

Besides recent disruption to European auto production and slowing global demand, Valeo and its CEO Jacques Aschenbroich face increased scepticism over the short- to medium-term outlook for heavily automated cars.

Reporting by Sudip Kar-Gupta and Gwenaelle Barzic Additional reporting by Laurence Frost Editing by Inti Landauro and Edmund Blair