Volkswagen has seen its shares almost double after sports car maker Porsche announced at the weekend that it had increased its stake in the company.

In early afternoon trade, VW’s shares were up 87.7% at 385.27 euros, having been up 98% earlier in the day.

Porsche said on Sunday it had lifted its stake in VW to 42.6% and intended to increase this to 75% in 2009.

The announcement led to a surge in VW’s share price as investors scrambled for the remaining VW shares on the market.

In its announcement on Sunday, Porsche reiterated its intention to increase its stake in VW above 50% by the end of the year.

It also announced that it had options to buy an additional 31.5% of VW.

The news led to VW’s share price almost doubling on Monday, as investors who had sold VW shares hoping to buy them back later at a lower price – known as short-selling – sought to lay their hands on VW stock.

The rush even lifted the DJ Stoxx European autos index by 31% at one stage, despite downbeat news from other car manufacturers such as Daimler Chrysler.

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Global stock markets have been hit again with major indexes in the US, Europe and Asia closing the day down, after a session of volatile trading.

On Wall Street, the main Dow Jones index fell 2.42%, despite being boosted earlier in the day by a surprise rise in new home sales in September.

The FTSE in London and Cac in Paris closed behind, with European indexes touching five year lows during the day.

Prior to that, Japan’s Nikkei index had ended at a 26-year low.

The Dow Jones was down 203 points to 8,175.77. The broader S&P 500 closed down 3.18% at 844.95, and the tech-heavy Nasdaq was down 2.97% at 1505.90.

At close the FTSE in London closed down 0.79%, or 30.77 points, at 3,852.59.

In Paris the Cac was down 3.96%, or 126 points, at 3067.35, although the Dax in Frankfurt was up 0.91% at 4,334.64, shares in Volkswagen soared 146%.

Earlier the FTSE had fallen 5.6% to 3,665 points – its lowest level since April 2003.

The pound also continued its recent falls, dropping against the dollar to $1.5341 in early trading before recovering slightly to $1.5591.

The euro was also lower, sliding to $1.2377, around levels last seen in April 2006, before coming back to $1.2548.

“There’s lots of volatility, not just in the equity market, but in the interest rate and currency markets too,” said Neil Parker, market strategist at Royal Bank of Scotland.

“We’re going to get further big swings as the markets watch for what the authorities are going to do.”

“There is more pain left. The global turmoil does not appear to be resolving soon” Atul Mehra, J M Financial Asian impact

Japan’s Nikkei 225 index ended down 6.4% at its lowest level since 1982.

On the currency markets, Japan’s yen stayed near its 13-year high against the US dollar, despite threats of G7 intervention.

In other market news:

– Oil prices fell to 17-month lows. US light crude was down $1.77 at $62.38 a barrel. Brent was $1.75 lower at $60.30.
– India’s Sensex index dropped 6.1% to its lowest level since November 2005 before closing down 2.2%
– The Seoul market reversed early losses to close up 0.8% after South Korea’s central bank cut its key interest rate from 5% to 4.25% at a rare, unscheduled meeting
– In Hong Kong, the Hang Seng closed down 12.7% in its biggest single-day fall since 1991
– Chinese shares also fell, with the Shanghai Composite Index losing 6.3% to its lowest level since September 2006
– In the Philippines, the main index fell 12.3%, as the country’s second biggest bank Banco de Oro Unibank reported a loss of 1.3bn pesos ($26.8m; £16.8m) because of its exposure to the US investment bank Lehman Brothers
– European Central Bank President Jean-Claude Trichet says another cut in eurozone interest rates is “possible”
– Argentine stocks fell more than 5%, closing at their lowest level in more than five years

“There is more pain left. The global turmoil does not appear to be resolving soon,” said Atul Mehra at the brokerage J M Financial in Mumbai.

Yen warning

Earlier on Monday the Group of Seven (G7) industrialised nations issued a statement warning that the strength of the yen was a threat to economic stability, which was taken as a threat of co-ordinated action to reduce the value of the currency.

While the yen briefly weakened, it soon climbed back towards Friday’s 13-year high against the dollar.

The yen has been strengthening as a result of the end of the carry trade, in which traders borrowed the Japanese currency and used it to buy currencies with higher interest rates.

“Brown’s solution to the current global problem is likely to lead to net gains” Tom, UK

Send us your commentsAs the difference between Japanese rates and those elsewhere in the world has fallen, traders have been ending the carry trade, which means they have been using other currencies to buy yen, which has boosted the Japanese currency.

In other currency news, the Australian government intervened for a second time to support its currency, which was trading at a 5-year low against the US dollar. One US dollar was worth 1.64 Australian dollars.

The Australian central bank last intervened more than a year ago and before that had not done so since 2001.

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If anyone is looking for barometers of how the world is doing, you only have to look at Swedish firm Volvo which has taken orders for just 115 new lorries over the last three months.

In the third quarter of 2007 the order book was for near 42,000 lorries which represents a fall of 99.7%. Volvo is not the only business in this sector that is in trouble with Scania (of which Volvo is a majority shareholder) has seen its truck orders in Europe crash by 69% in the last three months.

Shares in Volvo have plummeted by 20%, as it has reported a 37% plunge in earnings for it’s third quarter. The company, having already announce 1,400 job loses in September, has said that this rapid decline in its business could see thousands more job losses!

Global share markets have fallen back amid investors’ widening fears of a sustained worldwide economic recession.

Wall Street tumbled sharply following similar falls across Europe and Asia, before clawing back some ground.

The Dow Jones Industrial Average closed 3.6% down having gone more than 5% lower in early trading while the Nasdaq index finished 3.2% down.

On European markets, London closed 5% lower, Frankfurt slid more than 5% and Paris was down more than 3.5%.

Investors have been dumping shares worldwide because of gloomy prospects for the global economy – and are looking at other forms of investment.

Amid wider signs of the global economic slowdown:

– Asian shares tumbled, with Tokyo down 9.6%, Seoul plunging 10.6% and Hong Kong falling 8.3%. In Latin America, Brazil’s main market fell 7%
– Oil prices have continued to fall, despite Opec’s efforts to steady prices by cutting output by 1.5 million barrels a day. US, light sweet crude fell $3.69 at $64.15 . London Brent dropped $3.87 to $62.07
– The UK economy shrank for the first time in 16 years between July and September, confirming that Britain is on the brink of recession
– The pound saw its biggest one-day drop against the dollar since 1992 falling to $1.52, its lowest level in six years, before rebounding slightly to $1.58
– The euro dropped to $1.25, its lowest level for two years, on expectations of eurozone interest rate cuts and slowing economic growth
– In Moscow, share trading was suspended on both main share indexes until 28 October, after they plunged more than 10%.
– Investors are now trying to ascertain how deep the global recession will be and the impact on future growth

Global money markets have showed renewed signs of stress, despite the billions of dollars that central banks and governments have pumped into the markets in recent weeks.

Investors worldwide are worried about falling share prices and the possibility of companies defaulting on their debts.

As a result, they have been selling shares in markets across the globe and switching to less risky forms of investments, such as government securities.

‘Awful cycle’

On Friday, the yield on US Treasury bills fell – a sign that demand for them is high and investors are willing to earn lower returns in exchange for a safe investment.

However, there was one glimmer of hope and a sign that banks may be more willing to lend to each other. Three-month lending rates among banks in the US and Europe dipped slightly.

What’s the real impact of the economic slowdown? BBC News is taking the temperature across the UK in a special day of coverage

The rate for lending dollars over a three month period eased to 3.52%, though the fall was very slight – just 0.02%.

The rates have fallen steadily for 10 days, as confidence in the banking sector has been helped somewhat by all the rescue measures announced by governments.

“Investors are now trying to ascertain how deep the global recession will be and the impact on future growth,” said Chris Jarvis, at Caprock Risk Management, New Hampshire.

The dollar and yen both rose sharply against most other major currencies, kindling speculation that central banks might be forced to intervene to rein in volatile moves.

“You are seeing the currencies move as they would in any sort of full-fledged panic,” said Firas Askari, at BMO Capital Markets in Toronto.

“I think we have to be close to the end of this awful cycle. It’s usually darkest at the bottom,” he said.

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Shares in two US banking giants have fallen on Thursday as investors continue to worry about the turmoil in the global financial markets.

Shares in Morgan Stanley fell 21%, while Goldman Sachs, the largest remaining independent investment bank declined 13%.

Analysts fear the banks may not be able to stand alone as independent firms.

The world’s biggest central banks earlier pumped billions of dollars into markets to try to calm investor nerves.

Morgan Stanley shares have fallen 38% in the past week amid unprecedented turmoil in the global banking system.

Independence threatened

Morgan Stanley is believed to be seeking a partner to help it survive the financial storm.

Analysts also said rival Goldman Sachs may not be able to remain independent.

Events of the past week have reshaped the financial landscape including the rescue of insurance giant AIG, the collapse of Lehman Brothers and the takeover of Merrill Lynch by Bank of America.

Central banks in the UK, US, Europe, Canada, Switzerland and Japan pumped $180bn into money markets on Thursday.

They hope the co-ordinated move, the fourth such effort since the onset of the credit crisis last year, will keep credit flowing and calm volatile markets.

US President George W Bush expressed concerns about the turmoil in the markets saying his administration was prepared to go beyond the “extraordinary measures” already taken to stabilize them.

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Shares in UK bank HBOS led a decline in banking stocks as turmoil on the financial markets triggered by the collapse of Lehman Brothers continued.

Investors are concerned that HBOS is too dependent on money markets to fund its lending as the cost of borrowing shoots up.

Shares in HBOS closed down 21.7%, or 50.5 pence at 182p. Earlier in the day the shares were down 34%.

In a statement, HBOS said it had a “strong capital base”.

Ratings agency Standard & Poor’s lowered its credit rating on HBOS. It said the bank’s credit risk was higher than some of its rivals because high loan-to-value and specialist mortgages made up a “sizeable” part of its mortgage book.

S&P also said that the ratio of loans to customer deposits at HBOS was higher than many of its similarly rated peers, making it more vulnerable to rises in borrowing costs on the money markets.

Confidence

HBOS, the biggest UK mortgage lender, was the biggest decliner in the FTSE 100 index.

Not far behind was Royal Bank of Scotland, whose shares ended down 10.2% at 189.1p. Barclays fared better, its shares closed down 2.53% at 308p.

The interest rates at which banks lend to each have risen sharply since Lehman’s dramatic collapse over the weekend, suggesting that banks are losing confidence in each other.

Overnight sterling Libor increased from 5.5% to 6.8%, and the dollar Libor rate increased from 3.1% to 6.4%.

HBOS said on Monday that the group had the strongest capital ratio of all the major UK domestic banks.

“As we reported at the interim results, we are comfortable with our funding profile. We have access to a diverse range of funding sources and that hasn’t changed,” it added.

HBOS was created in September 2001 following the merger of the Halifax and Bank of Scotland.

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Concerns are mounting about the future of US insurance giant AIG as investors fear a domino effect in the aftermath of Lehman Brothers’ collapse.

Credit ratings agencies, which assess the riskiness of debt, have downgraded AIG – making it more difficult for the firm to borrow money.

On Monday, the insurer was a thrown a $20bn (£11.2bn) lifeline from New York state authorities.

But reports said it may need further capital for its business to survive.

Shares of AIG sank 61% on Monday to close at $4.76.

Wide influence

AIG is under pressure to raise capital after posting three quarterly losses in a row totalling $18.5bn (£10.3bn).

Reports said that AIG was meeting the US Federal Reserve and investors overnight to come up with another funding facility.

Ratings agencies Moody’s and Standard & Poor’s downgraded ratings on AIG debt on Monday.

AIG is much more than an insurance company. It also has a financial products division that acts like an investment bank and is at the heart of many of the firm’s current problems.

“Its tentacles reach into every part of the economy,” Matthew Bishop of the Economist told the BBC.

He said the consequences of the firm’s collapse would be devastating for the financial system.

“It’s worse than insurance policies not being valid. They are writing derivative contracts and these have the potential to leave a lot of other banks holding massive losses that they will have to deal with.”

AIG – KEY FACTS
Employs 115,000 people in more than 100 countries
Employs 3,000 people in the UK
Founded in 1919 in Shanghai
Now based in New York
Source: AIG, Daily Telegraph

Many of AIG’s problems are thought to stem from credit default swaps, which insure against companies going bust.

Sir Howard Davies, former chairman of the Financial Services Authority in the UK and a board member of Morgan Stanley, said that the US would be reluctant to let AIG collapse.

“AIG is absolutely enormous. It would create knock-on consequences in insurance markets,” he said.

“It is huge in China for example. That would export the American financial crisis there so it would have all kinds of political consequences.”

In the UK, AIG is best known as the sponsor of Manchester United. It also sells insurance policies through Argos and Boots.

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Deutsche Bank has confirmed it is buying a 29.75% stake in Germany’s biggest retail bank Postbank for 2.79bn euros ($3.9bn; £2.2bn).

Worth 57.25 euros a share – the offer is greater than the firm’s share price, which ended at 47.51 euros on Thursday.

The news hit Postbank’s shares as Deutsche Bank said it would have to raise 2bn euros through a share placing to fund the purchase.

It will allow Deutsche Bank to expand its presence in consumer banking.

“For relatively little capital, we have secured the dominant position in Europe’s biggest economy forever,” said Deutsche Bank chief executive Josef Ackermann.

But the complicated structure of the deal left analysts unhappy.

“This is bad,” said Dirk Becker, an analyst at Landsbanki Kepler.

“I don’t know why Deutsche are doing it in the first place; it doesn’t fit. I don’t know why they are doing it for this price. It all seems to have been pretty spontaneous.”

Complicated deal

It was thought that Deutsche Bank could not afford to buy all the shares owned by Deutsche Post straight away because of financial problems due to credit crunch related write-downs.

But as part of the deal, it has secured the option to buy additional shares for 55 euros at a later date.

Meanwhile, Deutsche Post has the option of forcing Deutsche Bank to buy its remaining 20.25% stake plus one share in Postbank, but at a lower price of 42.80 euros per share.

It is hoped the deal, dependent on regulatory approval, will complete in the first quarter of 2009.

Deutsche Bank said the move would not result in the closure of any branches or job cuts.

This is unlike the other major consolidation in Germany banking – Commerzbank’s 9.8bn euro takeover of Dresdner – which will result in about 9,000 job losses.

‘Highly complementary’

Postbank has Germany’s biggest branch network with almost 15 millions customers.

The acquisition will allow Deutsche Bank to almost double its German client base, which currently stands at about 10 million.

“Deutsche Bank’s and Postbank’s service offering is highly complementary with attractive opportunities for cross-selling of financial products,” a statement released by Deutsche Bank said.

Postbank’s shares tumbled as much as 12% after the announcement, but clawed back some of those losses in the course of the session to trade down almost 7% at 42.6 euros.

Deutsche Bank’s shares also fell, down 3.5%.

Shares in post office operator Deutsche Post climbed 3% as investors looked forward to a windfall payout.

News reported by The BBC

Executives at Lehman Brothers are racing to meet a deadline of Sunday night to find a new owner for the troubled bank, the BBC has learned.

The BBC’s business editor Robert Peston says that Bank of America is the main candidate to buy Lehman but Barclays may also play a role in the rescue.

Bankers close to Lehman warned that failure to conclude a deal by then would be devastating for firm.

Investors sent Lehman shares tumbling again in New York trading.

“If a solution isn’t found by the time Asia opens for business on Monday, well the consequences would be disastrous,” a senior banker told the BBC.

Our correspondent says that the US Treasury is working assiduously behind the scenes to facilitate a takeover of the bank.

He says that Barclays is taking part in the negotiations to buy all or part of Lehman but a US solution, led by Bank of America, is still the most likely outcome.

Lehman’s fund management business, which is in relatively good shape, may be sold separately, he adds.

Losses mount

Lehman announced the biggest loss in its history on Wednesday and investors remain unconvinced by the bank’s plans to strengthen its finances.

Lehman shares fell 13.5% to close at $3.65 in New York after falling around 40% on Thursday.

“Lehman will be lucky to end the day as an independent bank” Robert Peston, BBC business editor

The company has lost 80% of its market value since Monday. Six months ago the stock was trading at $48.65.

The Financial Times reported that Bank of America is considering a joint bid for Lehman with with private equity firm JC Flowers and China Investment Co, the Chinese sovereign wealth fund.

Concerns over the fate of Lehman follow the bail-out on Sunday of mortgage giants Freddie Mac and Fannie Mae. The lenders were thrown into financial difficulty after the collapse of the US sub-prime mortgage market.

Our correspondent says that Wall Street has lost confidence in Lehman’s capacity to survive as an independent entity.

But he questions whether any company would take the plunge and take over Lehman without some government support.

“The US Treasury may… have to provide some backstop underwriting for Lehman, so that an orderly resolution of Lehman’s woes can be achieved,” our correspondent says.

“When confidence in a bank erodes, it ebbs at first and then is gone in a great whoosh. Lehman will be lucky to end the day as independent bank.”

White House spokesman Tony Fratto said the US Treasury “is closely monitoring the markets and they stay in contact with market participants”.

News reported by The BBC

Shares in US investment bank Lehman Brothers have plunged 30% on fears the the group will not be able to raise the funds it needs to cover losses.

Lehman has been seeking ways to raise $6bn after sustaining credit crunch-related write-downs and losses.

There are fears that a potential investment from Korea Development Bank has fallen through.

Wall Street sent the firm’s stock down to $8. The bank’s share price is down more than 90% this year.

Lehman, the fourth-largest US investment bank, had hoped to secure a deal with the Korean fund before announcing third-quarter earnings on 18 September.

Lehman and KDB are thought to have been in talks for two months about the prospect of the state-run Korean bank taking a stake in Lehman.

Overseas interest

Lehman has been linked with a number of overseas financial firms as it tries to shore up its finances.

Recent reports have suggested that Japanese brokers Nomura Holdings are considering buying a stake in Lehman.

Other financial firms from China, Qatar and Abu Dhabi have also been linked to Lehman.

The bank is also said to be meeting with potential buyers of its Neuberger Berman asset management unit to raise funds.

News reported by The BBC