PSA partner Dongfeng posts strong 2013 profit

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SHANGHAI (Reuters) -- China's Dongfeng Motor reported a better-than-expected 16 percent rise in 2013 profit due to a rebound in sales at its Japanese partners.

Dongfeng, which on Wednesday agreed to buy a stake in struggling French partner PSA/Peugeot-Citroen, said net profit was 10.53 billion yuan ($1.70 billion), according to a statement issued through the Hong Kong Stock Exchange. That beat a forecast of 10.24 billion yuan from 28 analysts polled by Thomson Reuters.

Dongfeng's growth was largely driven by a sales rebound at its two Japanese ventures, which combined accounted for nearly half of vehicle sales by volume in 2013, as anti-Japan sentiment inside China triggered by a 2012 territorial dispute eased.

Dongfeng's ventures with Honda and Nissan last year reported sales increases of 114 percent and 20 percent by volume respectively, rebounding from a low base.

In 2012, a dispute between Beijing and Tokyo over a group of uninhabited islands in the South China Sea hurt sales of Japanese brands in China. "The reputation of Japanese car brands is still falling in China due to political tensions," said Liang Yonghuo, analyst at Haitong International Research Ltd. "Relying too much on Japanese brands is a risk for Dongfeng."

The agreement to buy 14 percent of PSA for 800 million euros ($1.10 billion) is part of a 3 billion euro capital tie-up that will see Dongfeng become one of PSA's biggest shareholders, matching holdings by the French government and the Peugeot family.

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