Volkswagen (VW) shares continued their rollercoaster ride today when they nearly halved in value after the German authorities took action to prevent the volatility in the carmaker's stock from destabilising the German market.

VW briefly became the world's most valuable company yesterday, worth £238 billion, following panic share buying by hedge fund chiefs.

The hedge funds were trying to cover potential losses after placing huge bets that Volkswagen shares would fall.

But Porsche, the sports car giant, had been secretly building a 74 per cent stake in its rival, the world's third-largest carmaker.

Porsche said this morning that it would take steps to smooth VW's soaring share price by settling hedging transactions, equivalent to 5 per cent of the company’s stock, but the move has come too late for some of the world's most aggressive hedge funds, which are facing losses that could amount to between €20 billion (£15.9 billion) and €30 billion.

Today the shares fell €416.9 to €528.09 in morning trade.

Hedge fund experts believe the losses could even bring down some smaller funds, which have been caught out by the sudden price move.

Two days of frantic trading have led to what is thought to be one of the heaviest losses on a single company's shares taken by hedge funds.

"This is without question the biggest single loss on a single stock in the history of hedge funds. It's a bloodbath," Laurie Pinto, a broker at North Square Capital, said.

Other shareholders in VW rounded on Porsche, saying that it had manipulated VW shares in an irresponsible manner. Porsche vehemently rejected the accusation of share-price manipulation.

With Porsche already owning 42.6 per cent of VW and Lower Saxony 20 per cent, the revelation on Sunday night that it had acquired the rights to an additional 31.5 per cent left little more than 5 per cent of shares free to cover short positions that amounted to nearly 13 per cent of the company's stock.

As soon as the markets opened on Monday, hedge funds and investment banks' scrambled to cover their bets.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive