PORSCHE moved yesterday to put a brake on volatility in Volkswagen shares - which have soared over four times in value in recent days - by selling up to 5 percent of its options for common shares in the auto maker.

The announcement sent shares in Volkswagen - Europe's biggest auto maker by sales - plunging 40 percent in Frankfurt trading to 578.92 euros (US$725.16) after two days of stratospheric gains. It also pulled the DAX index of blue chip stocks lower, by less than 1 percent, to 4,789.40.

Frank Gaube, a Porsche spokesman, said the company had offered to sell 'up to 5 percent of our options holding depending on market conditions' yesterday.

That comes after a weekend announcement that Porsche had bought options to increase its ownership in Volkswagen to 75 percent, building upon its previous ownership of 42.6 percent in common stock.

'We're only willing to reduce our options position as little as possible,' and Porsche won't sell 'one single share' of the 42.6 percent it holds in common shares, Gaube said.

Gaube said if the company sells a full 5 percent of its Volkswagen options, Porsche would still hold options on another 26.5 percent of VW common shares, giving it effective control of 69.1 percent of the company.

He said Porsche will continue its plans to increase its stake to 75 percent of the company some time in 2009.

The decision came after two days of wild gains by VW that set jaws dropping and eyes popping. Volkswagen shares jumped 82 percent on Tuesday after a similar surge on Monday.

Speculation on the reason for the gains centered on the fact that the number of available shares to trade after Porsche's deal had been dramatically reduced.

The shares were propelled higher by reports that hedge funds and big investors were forced to scramble to buy the few remaining shares to get out of mistaken bets that the stock value would fall.