STOCKS NEWS EUROPE-Peugeot's milder cash burn sparks short covering

Shares in struggling French carmaker PSA Peugeot Citroen surge as much as 9 percent after the group unveils new goals for its partnership with China's Dongfeng and says it slashed cash burn last year, beating an interim recovery goal, sending hedge fund short sellers scrambling to unwind negative bets on the stock.

"Results are a bit above expectations, and cash burn figures are also a bit better. Also, we now have details of the capital increases to come, and we finally have the outcome of a long story," a Paris-based trader says.

Loss-making Peugeot (Berlin: PEU.BE - news) - one of the worst casualties of Europe's recent economic slump and six-year car sales decline - is one of the most shorted stocks across Europe, with a massive 19.6 percent of shares out on loan, according to data from Markit.

But hedge funds have been feeling the heat in the past two months, as Peugeot's stock surged nearly 50 percent, setting the scene for a potential 'short squeeze'.

Short selling, a strategy popular with hedge funds, involves selling borrowed shares in the hope of being able to buy them back more cheaply later and pocket the difference.

Odey Asset Management LLP and D.E. Shaw are among the hedge funds with the biggest short positions on Peugeot, with 2.94 percent and 1.1 percent respectively, according to recent filings with French regulator AMF.

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