FRANKFURT - SHARES in Volkswagen, the biggest European carmaker, gained 93.27 per cent to 1,005.01 euros (S$1,890) in morning trading on the Frankfurt stock exchange as Porsche prepares to take over the company.

The shares then settled back to 950.00 euros, for a gain of 82.69 per cent.

The Dax index of leading shares was up by 8.98 per cent at 4,723.82 points, but most of the other issues were in negative territory.

On Monday, VW stock had gained more than 200 per cent at one point, with investors who had been betting VW shares would fall because of the slowdown in the German and eurozone economies caught on the hop as they shot up.

The Dax had closed on Monday with a gain of 0.91 per cent to 4,334.64 points, powered by a jump of more than 150 per cent in VW shares.

Because a small percentage of VW shares float freely on the stock exchanges, they can be subjected to strong movements by the sale or purchase of relatively small amounts, dealers say.

On Sunday, Porsche said it controlled 74.1 per cent of the shares in VW, via a 42.6 per cent direct equity stake and options giving it another 31.5 percent.

Porsche said it aimed to increase its direct equity stake to over 50 per cent by the end of 2008, 'provided that economic conditions allow'.

Previously Porsche had said it had a 35 per cent stake. Building it up to more than 75 per cent would allow it to gain full financial control and access to VW's cash flow.

VW shares had been targeted by investors for short selling, essentially a bet that a share's price will fall.

They then found themselves obliged to buy shares on the open market to cover those they had borrowed initially when the stock rose instead.

Porsche also expects the European Commission to issue shortly a decision on a new German 'Volkswagen Law' that determines the strength of various VW shareholders, notably the German state of Lower Saxony, where VW is based.

After condemning the old VW Law, the Commission has indicated it does not consider the new law to be valid either and a second condemnation of the legislation by an EU court would open the way for a full Porsche takeover.

With Porsche now controlling more than 74 per cent of VW and Lower Saxony holding around 20 per cent, very little remains free-floating, which exacerbates volatility in the share price, dealers said. -- AFP