The company, ranked second in Europe behind Germany's Volkswagen, said it sold 1.86 million vehicles in the six months to June, up 16.9 percent from a year earlier to outpace global market growth of 13 percent.

The gain was driven by new models, sales to China and an environmental focus, it said, with overseas sales offsetting a slowdown in Europe as government incentives to scrap old cars were withdrawn.

In the first half, sales outside Europe accounted for 36 percent of the total, up from 34 percent in the same period of 2009.

The group stood by its forecast that the European market would contract by about nine percent this year but that its share -- 14.6 percent in the first half, up one percentage point -- should continue higher thanks to new models.

China, now the largest and fastest growing market after it overtook the United States, is expected to grow at double-digit rates this year, with South America in single-digits.

PSA said sales in China chalked up a fresh record at 176,000 vehicles, up 49 percent as it increased its market share there to 3.3 percent, up 0.1 percentage point from first half 2009.

The company will sign a joint venture accord on Friday with China's Changan Automotive Group, Jean-Marc Gales, director for Peugeot brands said.

The new venture will build light utility vehicles and passenger cars, with Asia now a priority market for the company, he said.

"Asia is a priority," said Gales. "Two-thirds of world growth in the next ten years will be in Asia ... These are priority markets for us."

Car sales in China hit 13.64 million units in 2009, overtaking the United States as the world's number one auto market.

Beijing has offered incentives such as lower purchase taxes and subsidies for fuel-efficient vehicles in rural areas to boost the sector.

Peugeot has a separate joint venture with Dongfeng Motor Corporation and their two factories in Wuhan, the capital of central China's Hubei province, have a production capacity of 450,000 vehicles.

PSA aims to boost it Chinese market share over the next six years to eight percent, Gales said.

IHS Global Insight analyst Ian Fletcher said in a note that the figures showed "PSA has made a positive start to the year" but cautioned that as car scrapping incentives drop out, sales will likely slow.

PSA was well-placed in three key markets -- Europe, China and Latin America -- but remains out of India, Fletcher noted, and the company will likely be watching developments there closely.

Press reports earlier said PSA planned to invest 700 million euros in India to build a plant with annual capacity of 100,000 vehicles in the southern state of Andra Pradesh but Gales said he had nothing concrete to add.

"There are always discussions but there is nothing concrete," he said.

"We haven't forgotten India (which remains) a priority market."

Gales said the record first half sales reflected the strength of the Peugeot and Citroen brands, stressing the strong gains in Europe, the development of its presence in China and "confirmation of the environmental leadership" of the group.

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