Porsche, the sports-car manufacturer, said this morning that it would take steps to smooth Volkswagen's (VW) soaring share price by settling hedging transactions equivalent to 5 per cent of the company’s stock.

VW briefly became the world's most valuable company yesterday when short-sellers were forced to buy shares to cover positions after Porsche announced that it had indirect control of 74.1 per cent of VW.

Porsche said today: "Porsche intends, depending on the state of the market, to settle hedging transactions in the amount of up to 5 per cent of the ordinary Volkswagen shares.

“This may result in an increase in the liquidity of the Volkswagen ordinary shares.”

Yesterday, short-selling investors, who had sold shares in Europe's biggest carmaker in the expectation of a fall in price, were forced to try to cover positions with little stock available.

Germany's Lower Saxony state retains a 20 per cent stake in the carmaker, leaving less than 6 per cent to trade in the market after Porsche's raid.

On Monday, VW's shares nearly doubled after Porsche said that it owned 42.6 per cent and that it controlled 31.5 per cent through cash-settled options.

Yesterday, the rush to buy propelled the shares to an intra-day high of €1,005.01, valuing the company at €296 billion (£236 million), or $370.4 billion, before closing slightly lower at €945.

That was more than Exxon Mobil, the world's most expensive company, which was worth $343 billion at Monday's close.

Shares in European and American banks swung wildly amid rumours that they could be facing huge losses after betting on VW falling.

Société Générale, the French group, was hit by the speculation as its shares tumbled in Paris for the second consecutive day to close down 12.27 per cent at €33.33. The fall came despite SocGen's efforts to reassure markets that it had no skeletons in the cupboard — the third time this month that it has been forced to issue a statement in an attempt to calm fears over its health.

A Paris fund manager said: “All you would need would be to have shorted Volkswagen shares with too much leverage, and you would be facing colossal losses.”

SocGen has denied that it is facing VW-related loses.

In the US, Morgan Stanley and Goldman Sachs were also caught up in the latest wave of panic selling amid rumours that they could also be exposed to the VW short squeeze. Morgan Stanley denied the claims and sources at Goldman Sachs said that the group had no significant exposure.

Deutsche Bõrse, the German stock exchange, said last night that it would reduce VW’s weighting in the leading DAX index to 10 per cent after the car maker’s share price surge gave it a value equivalent to 27 per cent of the market.

BaFin, the German financial regulator, said it was monitoring VW’s share price and was looking into trading patterns but had not opened a formal inquiry.

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