UPDATE 2-France has no plan for Peugeot stake-ministry source
* An equity investment by the state not on agenda-govt
* Company "must not disappear", budget minister says
* Peugeot announced 1.4 bln eur non-cash writedown
* Shares up 0.2 pct
(Recasts with source comment, adds FSI and fund manager comments, updates shares)
PARIS, Feb 8 (Reuters) - France has no plans to support ailing carmaker PSA Peugeot Citroen with a stake purchase, a source in the finance ministry said, cooling speculation of a state cash injection to help ease the company's problems.
The comment came a day after PSA, suffering falling sales in a depressed European car market, highlighted the scale of its woes by taking a 4.1 billion euro ($5.5 billion) writedown on the value of its plant and other automotive assets.
"An equity investment by the state in Peugeot is not on the agenda," the source said on Friday. "The priority for the group is to pursue its recovery plan, to strengthen its alliance with General Motors and to continue its development."
Although the writedown was a non-cash accounting item that does not affect the group's liquidity or solvency, it reflected Europe's worsening market outlook and prompted speculation the state might intervene.
Budget Minister Jerome Cahuzac had said earlier France might consider investing in Peugeot, helping send its shares higher.
"It's possible," Cahuzac told BFM Television. "This company must not and cannot disappear and we must do what it takes for this company to survive."
The stock reversed most of its initial gain and was up 0.2 percent at 5.883 euros by 1116 GMT.
MORE PESSIMISTIC OUTLOOK
France's FSI sovereign-wealth fund is not working on any plan to invest in Peugeot, an FSI spokesman said. Peugeot declined comment.
Unlike PSA's domestic rival Renault, the French state has no holding in PSA. France nationalised Renault after World War Two and still holds a 15 percent stake. Peugeot remained private and is 25 percent owned by the Peugeot family.
Traders and analysts said the size of the writedown was offset by the fact it was a non-cash charge and by speculation the state could support the company's capital base.
"The (writedown) measure will not hit cash flows, nor will it affect liquidity or solvency," a Paris-based trader said. "It does however show that the outlook for a recovery in the European market is more pessimistic than it was six months ago."
Any state investment in Peugeot would be a "last resort", newspaper Liberation said, citing unnamed sources.
Peugeot is one of the companies worst hit by Europe's protracted sales slump. It is cutting 8,000 jobs and closing a factory to stem losses approaching 200 million euros a month. The company has pledged to return to breakeven late in 2014.
"The writedowns reflect Peugeot's difficulties, namely that it concentrated too much on growing in Europe and ended up missing out on international growth and alliances," said Harry Wolhandler, chief executive of Amilton Asset Management. "We're staying away from the stock for now both because of its financial situation and above all its strategic positioning."
The Paris-based company said the writedown did not affect plans to reduce cash burn by half this year or its earlier 3 billion euro net debt forecast for the end of 2012. ($1 = 0.7469 euros)
(Additional reporting by Christian Plumb, Matthieu Protard, Brian Love and Alexandre Boksenbaum-Garnier; Editing by David Holmes)