Shares in PSA Peugeot Citroen see-sawed on talk of further state support for the embattled French auto group after it announced a massive writedown of 4.7 billion euros ($A6.17 billion) for 2012.
At the opening of trading shares in the carmaker plunged by nearly five per cent on Thursday's announcement of the charge to reflect that the crisis in the European car market is likely to last longer than previously thought.
But but within forty minutes the share price had rebounded to show a net gain of nearly four per cent after a minister said it was possible for the state to take a stake in the company.
The shares then plunged back into the red after the finance ministry poured cold water on that possibility.
Approaching midday, PSA Peugeot Citroen shares were showing a loss of 0.65 per cent to 5.83 euros while the Paris CAC 40 index was up 0.53 per cent.
Global sales by PSA Peugeot Citroen, France's biggest auto company and Europe's second-biggest, dropped 16 per cent last year to below three million units, as the firm fell victim to slumping demand in Europe where the company makes about 60 per cent of its turnover.
Commenting on press speculation that the state could come to the company's rescue by taking an equity stake, Budget Minister Jerome Cahuzac said it was possible.
"It's possible, isn't that why the FSI exists?" the minister said in an interview on BFMTV and RMC radio early on Friday, referring to the French state's Strategic Investment Fund.
"If the Strategic Investment Fund takes a stake in the company, it is the state which is doing so in one manner or another," said Cahuzac.
"Let's be clear, the company shouldn't, must not disappear," he added. "Thus we have to do what is needed so this company" survives.
PSA Peugeot Citroen, which has announced a production tie-up with US auto giant General Motors, was rescued last year with state guarantees of about seven billion euros for the group's banking and credit arm.
The leftist daily Liberation reported on Friday that the French state was examining closely the possibility of taking a stake in the company.
"If an increase in capital turns out to be indispensable the state could participate," the newspaper said, citing sources in the president's office.
While PSA Peugeot Citroen's situation was not yet dire, the newspaper reported government officials said the French state would not let the company collapse.
With politically-sensitive unemployment climbing over three million, plans announced by PSA Peugeot Citroen to close a plant near Paris and axe about 8,000 jobs have provoked a national controversy.
However, Economy and Finance Minister Pierre Moscovici said that "the involvement of the state in the capital of PSA (Peugeot Citroen) is not on the agenda".
He said Cahuzac, his deputy, was speaking about the tools available to the state, but that the state taking a stake "wasn't envisaged or necessary and wouldn't improve" the situation of the company.
Moscovici said the writedowns did not mean that PSA Peugeot Citroen needed to raise capital nor did they call into question the solvency or liquidity of the company.
PSA said on Thursday it was maintaining its "short- and medium-term" financial targets with a net debt of three billion euros for the end of 2012 and a return to a balanced cash flow by the end of 2014.
"The priority for the group is to begin to implement its recovery plan and consolidate its alliance with General Motors," added Moscovici.
The companies are targeting manufacturing more than two million cars per year under joint projects unveiled in December, according to union sources.
Barclays Bourse analyst Renaud Murail said investors reacted nervously to the announcements, but in the final analysis "the writedowns are enormous and will drag down earnings even if they don't hurt cash flow and solvency".
PSA Peugeot Citroen is to announce annual earnings this week, with the writedowns signalling a huge loss.
The company has been locked in difficult discussions with labour unions about its plans to cut staff, with the Aulnay plant hit by strikes.
French Socialist government has shown an interventionist streak to protect jobs, threatening to nationalise a steel plant last year and promising state support to the buyer of a bankrupt oil refinery.