NEW YORK, June 25 (Reuters) - Standard & Poor's on Thursday said it may cut its ratings on Peugeot (PEUP.PA: Quote, Profile, Research) into junk territory, saying that weak auto demand is likely to worsen the French automaker's financial profile.

S&P said it may cut Peugeot from BBB-minus, the lowest investment grade. Downgrades into junk territory can significantly increase a company's borrowing costs.

"We perceive that Peugeot's financial profile relative to our current rating could deteriorate further in 2009, and that it might not recover in 2010," S&P said in a statement.

Auto demand in Europe is likely to remain low in 2010, and the market accounted for around 70 percent of Peugeot's unit sales in 2008, S&P said.

(Reporting by Karen Brettell; Editing by Diane Craft)