By Laurence Frost and Gilles Guillaume
PARIS (Reuters) - PSA Peugeot Citroen
Tavares, 55, will join CEO Philippe Varin's team on January 1 and take over later in 2014, the loss-making carmaker said in a statement, confirming widespread reports of the appointment.
Peugeot shares had closed 5.1 percent higher at 10.75 euros following the reports, also lifted by a temporary easing of Iran sanctions that may soon allow car sales to resume there.
The CEO switch "signals that PSA and the Peugeot family are willing to make far-reaching changes", said Erich Hauser, a London-based analyst with International Strategy & Investment.
"We consider Tavares to be a strong hire," he added.
Varin, 61, has led ongoing talks with Dongfeng Motor Group <0489.HK> to deepen an existing joint venture with a multi-billion-euro share issue, in which the Chinese carmaker and the French state would acquire stakes in Peugeot, sources have said.
The surprise succession cuts short the Peugeot CEO's contract, which was renewed for another four years in May. Sources have said the handover is designed to address Dongfeng concerns about management quality and continuity as it weighs investing in an expanded alliance.
The appointment of Tavares will allow the company to pursue its "strategy of recovery and development", Chairman Thierry Peugeot said in the statement.
Peugeot, one of the carmakers worst-hit by the European market slump, is cutting jobs and plant capacity as it struggles to halt losses within two years.
Even then it will lack the financial clout and industrial scale to compete globally on its own. Varin has acknowledged that Peugeot will need new partners and fresh capital to support future vehicle and technology investments.
Varin, who previously ran Anglo-Dutch steelmaker Corus, joined Peugeot in 2009 and has steered the company through the worst of the six-year European auto market slump.
But his support for a deeper tie-up with 7 percent shareholder General Motors
"A PSA led by Tavares might seem a safer place to invest for Dongfeng and it might thus potentially be prepared to commit more capital," Societe Generale analyst Stephen Reitman said.
The appointment raised eyebrows among French car executives, for whom career moves between Renault and Peugeot are usually barred by an "unwritten rule", insiders say.
"This is unheard of in France," said one industry source close to both manufacturers. "Renault won't be happy - Tavares knows all their product plans for years to come."
Tavares left Renault abruptly in August after saying publicly he was ready to lead another carmaker.
He began his career there in 1981 and moved to Japanese affiliate Nissan <7201.T> 23 years later, going on to hold senior roles that have given him first-hand experience of managing a global auto alliance across cultural boundaries.
Nissan, which is 43.4 percent-owned by Renault, also has a longstanding joint venture with Dongfeng in China.
Tavares is understood to have "a close relationship with Dongfeng management, built up during his time at Nissan", Societe Generale's Reitman said.
(Editing by Mark John and Pravin Char)