PARIS (Reuters) - PSA Peugeot Citroen (>> PEUGEOT) is poised to name former Renault No.2 Carlos Tavares as its next chief executive, sources with knowledge of the matter said, in a move that may help to secure new funding from Chinese partner Dongfeng (>> Dongfeng Motor Group Co. Ltd).

The troubled French carmaker will brief unions later on Monday following a board meeting where the appointment was presented, according to three people who asked not to be identified. A Peugeot spokesman declined to comment.

The 55-year-old former Renault executive will serve as Peugeot CEO Philippe Varin's second-in-command for an interim period before taking charge next year, one of the sources said.

Peugeot shares were up 4.4 percent at 10.69 euros as of 1200 GMT, also propelled by a temporary easing of Iran sanctions that could allow the company to resume sales there.

"A change in top-level management would be welcomed by the market as it 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," Hauser added in a note to investors.

Varin, 61, is leading talks with Dongfeng Motor Group to deepen an existing joint venture with a multibillion-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 extended by 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.

Varin, the former CEO of Anglo-Dutch steelmaker Corus, joined Peugeot in 2009 and has steered the company through the worst of a six-year European car market slump.

But his support for a deeper tie-up with 7 percent shareholder General Motors (>> General Motors Company) or Dongfeng has led to bouts of tension with members of the founding Peugeot family, which would lose control of the company in the planned capital hike.

"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.

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.

Tavares, 55, left Renault abruptly in August after saying publicly he would like to lead another carmaker.

He joined Renault in 1981 and moved to Japanese affiliate Nissan 23 years later, going on to hold senior Renault-Nissan roles that have given him first-hand experience of managing a global car-making alliance across cultural boundaries.

Nissan, which is 43.4 percent-owned by Renault, also has a longstanding joint venture with Dongfeng in China.

Tavares "would bring with him what's thought to be a close relationship with Dongfeng management, built up during his time at Nissan," Societe Generale's Reitman said.

(Editing by Mark John and Mark Potter)

By Gilles Guillaume and Laurence Frost