Shares in Volkswagen, the German carmaker, rose steeply again today as investors continued to scramble for limited stock following the raid by Porsche.

The shares rose €40 to €557 in early morning trading on Germany's Dax exchange, giving it a market value of €162.6 billion, after the group also announced that pre-tax profits rose by €500 million, or 11 per cent, to €5.3 billion in the nine months to September.

Group sales were 5.5 per cent higher at €85.4 billion than in the same period last year, while operating profit at €4.9 billion was 15 per cent better than last year's nine-month result partly because of a surge in positive currency effects.

VW, which is Europe's biggest auto maker, stands by its outlook for the full year.

"Together with the higher sales revenue resulting from the expected increase in unit sales, this wil help lift our operating profit for 2008 above the previous year's figure", said the group.

"We expect our deliveries to customers in 2008 to beat the previous year's figure. The Central and Eastern Europe, South America and Asia-Pacific regions will record the strongest growth rates", it added.

However, VW cautioned about the possibility of economic stagnation in its key markets, including Germany, and on changes in exchange rates to the US dollar, yen, sterling and Czech crown among others.

VW shares have been on an rollercoaster ride this week, following the weekend announcement by Porsche, the sports carmaker, that it had options that would give it 74 per cent control of the company.

The state of Lower Saxony owns a further 20 per cent, which leaves just 6 per cent to trade freely. This has led to huge swings in the share price as hedge funds have tried to close their positions in the carmaker.

Hedge funds had shorted VW's stock, expecting it to fall but Porsche's raid has left them with losses estimated at about €20 billion (£15.8 billion).

The hedge funds were heading for a full-blown row with the German Government yesterday as it emerged that funds sitting on tens of billions of euro losses after short-selling Volkswagen could go bankrupt.

On Tuesday, VW's stock shot past €1,000 a share, briefly making the carmaker the most valuable company in the world. As the hedge funds closed their positions, the share price fell yesterday, closing at €514.

The list of hedge funds hit by the Porsche squeeze on VW grew yesterday as it emerged that Steven Cohen's SAC Capital, and Perry Capital, a key financier in Malcolm Glazer's takeover of Manchester United, were among the losers. Greenlight Capital, run by David Eindhorn, Marshall Wace, York Capital and Glenview Capital are also among about a hundred hedge funds thought to have made losses.

London-based Marshall Wace is understood to have incurred relatively small losses, of £5million, and Odey Asset Management — one of the capital's oldest hedge funds — warned investors that it had lost out, although the fund is understood to believe it can claw back most of the losses.

Porsche has said that it will sell about 5 per cent of its VW stake to help ease the shortage of stock.

The carmaker said the option sale was designed to avoid further market distortions. Porsche will have control of 69.1 per cent of VW as a result of the options sale.

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