EU challenges French-backed PSA rescue, report says

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PARIS (Reuters) - The European Union is challenging the terms of a French government-backed rescue for PSA/Peugeot-Citroen's financing arm, a French newspaper reported.

In a letter to the French government, EU Competition Commissioner Joaquin Almunia said the state-orchestrated refinancing of Banque PSA Finance constituted state aid, Les Echos reported on Friday.

A state aid probe by Brussels could ultimately increase the cost to PSA of a 7 billion euro ($9.3 billion) state loan guarantee granted in October and an 11.5 billion euro refinancing deal to be finalized with creditors next month.

The EU objections follow a formal complaint received by Brussels from an unidentified PSA competitor, according to the paper.

PSA had no immediate comment. French government and EU officials did not immediately return

calls seeking comment.

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