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STOCKS NEWS EUROPE-Peugeot sinks on capital hike news

Shares in struggling French car maker PSA Peugeot Citroen sink as much as 9.3 percent in strong volumes after a source told Reuters the group's board has approved a dilutive 3 billion euro capital increase in which China's Dongfeng Motor Co. and the French government will take a significant stake.

"It's a knee-jerk reaction to the prospect of dilution for shareholders, even though the news was expected. It also shows that short sellers still have the upper hand on the stock," a Paris-based trader says.

According to data from Markit, Peugeot (Berlin: PEU.BE - news) has 16.7 percent of shares out on loan, making it one of the most shorted stocks across Europe.

Peugeot trades 125 percent of its 90-day daily average volume by mid morning trade, compared to an average on the STOXX Europe 600 of 25 percent.

Reuters Messaging: blaise.robinson.thomsonreuters.com@reuters.net