UPDATE 1-Peugeot, GM discard large car project, pursue others

* JV to focus on 3 car projects, not 4

* Joint small gas engine venture added

* Say eyeing Latin America initiatives

PARIS, Dec 20 (Reuters) - General Motors Corp and PSA Peugeot Citroen have dropped plans to jointly develop a large car and will base their alliance on three smaller vehicle projects, the automakers said on Thursday.

GM and Peugeot also said in a statement that they will broaden the alliance to work on a new generation of small gasoline engines and will explore "product and industrial initiatives in Latin America or other growth markets."

The decisions on came as the two automakers signed agreements to carry forward the global alliance they agreed earlier this year as both seek to stem deep losses in the depressed and highly competitive European market.

They had previously said the alliance would focus on four joint vehicle programmes, including two small cars, a compact crossover and a larger vehicle, but the statement said that only the three compact cars had gotten the go-ahead.

The alliance, with which the companies had initially pledged to achieve annual savings of $2 billion within five years, also includes a joint purchasing agreement.

Earlier plans had also called for the carmakers to jointly develop a small car for Brazil, but those were later dropped. Though Peugeot and GM said on Thursday they would explore initiatives in Latin America, they did not outline any specific projects.