Level of influence

The future of the alliance could be affected by Dongfeng's level of influence in any expanded partnership with Peugeot, GM Vice-Chairman Steve Girsky told Reuters last month. A GM spokesman declined further comment on Monday.

Under a "change of control" clause in their alliance agreement, GM has the right to pull out if any third party acquires Peugeot stake of more than 10 percent.

"It's clear to us that Peugeot's existing alliance with GM would be at risk following such a transaction," Barclays analyst Kristina Church said in a note to investors. "The need for a 3 billion euro cash injection reveals how dire a financial situation the company finds itself in."

French Finance Minister Pierre Moscovici declined to confirm or deny that the government was preparing to commit fresh funds, in addition to a 7 billion euro state guarantee granted to Peugeot's financing arm last year.

"I'm not going to comment on that kind of thing," Moscovici told France Inter radio. "The government is not going to remain indifferent to Peugeot ... After all, we're talking about the future of a major listed company that employs almost 100,000 people in France."

The carmaker has lost more business to competitors in recent months and its European market share fell to 9.7 percent in August from 11.3 a year earlier. In September its slice of French sales tumbled 3 points to 27.7 percent.

Unveiling cutbacks last year, CEO Varin said his recovery plan assumed a steady return to a 13 percent European market share.

Renault, itself 15 percent French government-owned, declined to comment on the possible injection of public cash into its domestic rival. But insiders said privately that the reported capital increase plan was met with relief.

"Everyone here has been worried for months about our mutual network of suppliers crashing if PSA goes bankrupt," one said. "If this capital increase does happen, Peugeot gets more time and more cash they can use to pay off suppliers, and that has to be a good thing."