UPDATE 1-Moody's downgrades Peugeot to Ba2, may cut again

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July 26 (Reuters) - Moody's Investors Service on Thursday downgraded PSA Peugeot Citroen S.A. a notch to Ba2 and warned it could cut it further citing mounting losses and dwindling cash reserves at the French car company.

The agency said it was likely to downgrade Europe's No. 2 car maker by a further notch unless the company took further action to stabilise the operations or the French government planned to support low emission vehicles.

Moody's said the downgrade affected about 5.6 billion euros ($6.8 billion) of debt. Credit ratings agency Standard & Poor's on Wednesday cut its ratings on Peugeot to BB from BB+ with a negative outlook, citing the company's rapid cash burn.

"Moody's believes that PSA faces intensified operational stress, with financial metrics that are anticipated to be commensurate with the single-B rating category by year-end and are unlikely to recover beyond the low to mid-Ba range over the next two years," said the agency in a statement.

PSA Peugeot on Wednesday insisted it will press ahead with restructuring plans and job cuts, as France unveiled industry support measures and called for EU action to curb South Korean imports.

Reporting a first-half loss as executives discussed 8,000 planned job cuts with unions, Peugeot said the layoffs would help to generate 1.5 billion euros in savings and halt the mounting losses that threaten its future. (Reporting by Wayne Cole in Sydney; Editing by Lincoln Feast)