VW Flying High

The increases briefly made VW the world's biggest company by market value with 296.06 billion euros ($370.4 billion) based on ordinary stock. Exxon Mobil has about $343 billion in value, at Monday's closing price. VW shares then eased back from the peak to 652 euros in midday trading on Tuesday.

VW's Tuesday spike followed big gains on Monday that at one point reached 200 percent. The carmaker's gigantic gains put the entire DAX index of leading German companies in positive territory, even though most other firms had posted losses on Tuesday.

Only a small portion of VW shares are traded freely on the stock exchanges. The government of Lower Saxony holds a 20 percent stake and Porsche has recently gone on a buying spree.

On Sunday, Porsche announced it directly owns 42.6 percent of VW stock and has options on another 31.5 percent. That leaves less than 10 percent of shares free-floating, which exacerbates volatility in the share price, traders told the AFP news agency.

Porsche poised for takeover

Porsche said it aims to increase its direct equity stake to over 50 percent by the end of 2008. The luxury carmaker had previously said it had a 35 percent stake. If it secures more than 75 percent, Porsche would gain full financial control and access to VW's cash flow.

Investors had targeted VW shares for short selling, which is essentially a bet that a share's price will fall, then found themselves obliged to buy shares on the open market to cover those they had borrowed initially when the stock rose.

German regulator Bafin was investigating the VW share movement to see if any insider trading or market manipulation had taken place, according to a report from Reuters news agency.

"Each and any short seller in the world is trying to close up their position and there is no way they can do it except for trying to buy like mad," FrankfurtFinanz analyst Heino Ruland told Reuters. "Someone is selling it at a rather interesting and rich price -- it is about 10 times as much as it should trade."