By Simon Carraud and Sudip Kar-Gupta
PARIS (Reuters) - French prosecutors are investigating Renault (PA:RENA) over suspected cheating on vehicle exhaust emissions, a source at the Paris prosecutor's office told Reuters on Friday, sending shares in the automaker lower.
The probe follows the Volkswagen (DE:VOWG_p) diesel emissions scandal, which emerged in September 2015.
VW this week agreed to pay $4.3 billion in a settlement with U.S. regulators and the U.S. Environmental Protection Agency on Thursday accused Fiat Chrysler (MI:FCHA) of also using software to conceal excess diesel emissions.
Fiat Chrysler Chief Executive Sergio Marchionne rejected the allegations, saying there was no wrongdoing and the company never attempted to create software to cheat emissions rules by detecting when the vehicle was in test mode.
Three judges have been looking into the Renault matter, the source said. Whether the prosecutor's inquiry is followed by a trial is for the judges to decide.
They are focused on the public health implications of Renault's actions, the source told Reuters.
Renault said it respected all laws concerning exhaust emissions and added that its vehicles did not have software allowing it to commit fraud in this area.
The opening of the judicial probe comes two months after the government passed findings of an investigation by consumer fraud agency DGCCRF to the prosecutor's office.
Renault shares fell 4 percent on Friday but had clawed back some ground, trading down 2.4 percent by mid-session versus a 0.5 percent rise on the STOXX Europe 600 Automobiles index (SXAP).
Inquiries into diesel emissions will impact automotive stocks in the near term and provide a reason to "short" such stocks, betting on declines in their price, said Terry Torrison, managing director at Monaco-based McLaren Securities.
"The car sector had a good run-up last year, but it's a sector that I'm now negative about. Every regulator seems to have a bee in their bonnet about diesel emissions. This story is not going to go away any time soon," Torrison said.