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London - Volkswagen shares plunged on Monday as investigations spread into its thwarting of pollution controls, but European markets rose on hopes Greece may follow austerity reforms following the government's re-election.
Volkswagen, the world's largest automaker by sales in the first half of this year, said it had halted all diesel vehicle sales in the United States during a probe into the scandal, which could lead to fines of more than $18bn.
According to the US authorities, VW equipped 482 000 cars in the United States with sophisticated software that discretely turns off pollution controls when driving normally and secretly turns them on only when it detects that the car is undergoing an emissions test.
VW chief executive Martin Winterkorn has issued an apology and pledged to cooperate with authorities, but the company's troubles could spread after South Korean and German authorities indicated they planned to test vehicles.
The carmakers shares fell by more than 20% in morning trading, but recovered later in the day to a loss of 18.1% to €132.00.
However, Volkswagen's troubles could not brake rallies in the broader markets.
London's FTSE 100 index advanced 0.28% from Friday's close to stand at 6 121.43 points in afternoon deals, the CAC 40 in Paris climbed 1.03% to 4 582.35, and Frankfurt's DAX 30 index advanced 0.14% to 9 929.64.
Milan rose 0.91% and Madrid edged up 0.04% in value.
Athens dropped 1.08% following the re-election of Alexis Tsipras in a thumping poll victory, which boosted sentiment in the rest of Europe as voters handed him a mandate to drive through unpopular reforms agreed under an austerity deal struck with international creditors.
"Yet another Syriza victory in the Greek election ... ostensibly secures the continued implementation of the measures agreed in the latest bailout," said Spreadex analyst Connor Campbell.
Tsipras, who had justified the austerity deal he signed in July with European leaders as saving Greece from a chaotic exit from the eurozone, said the election victory would "change the balance" in Europe and strengthen Greece's fight against endemic corruption and hidden wealth.
In foreign exchange activity on Monday, the European single currency slid to $1.1244, compared with $1.1299 late in New York on Friday.
"The outcome from this weekend's Greek parliamentary election is unlikely to have a material impact on the euro," said currency analyst Lee Hardman at Bank of Tokyo-Mitsubishi UFJ.
In company news on Monday, London-listed drugmaker Shire Pharmaceuticals announced it had won European approval for its Intuniv treatment for attention deficit hyperactivity disorder
In reaction, Shire shares surged 2.1% to 4 844 pence in late morning deals, climbing to the top of the FTSE 100 risers' board.
On the downside, Royal & Sun Alliance saw its share price collapse by more than a fifth after Zurich Insurance scrapped its takeover bid for the British insurer.
RSA shares tanked 20.59% to 404.60 pence after Zurich pulled the plug on its $8.8bn offer.
US stocks rose in opening trade on Monday, partially recovering from Friday's rout after the Federal Reserve kept interest rates at zero due to worries about global growth.
The Dow Jones Industrial Average climbed 0.61% in the first five minutes of trading to stand at 16 484.40 points.
The broad-based S&P 500 gained 0.54% to 1 968.62, while the tech-rich Nasdaq Composite Index added 0.55% to 4 853.91.
Asian markets largely turned lower on Monday, as traders there also began to see the Fed's decision as a sign of weakness in the global economy, despite having initially welcomed it.
Sydney ended 2.02% lower, Seoul shed 1.57% and Hong Kong lost 0.75%.
However, Shanghai closed 1.89% higher. Tokyo was closed for a public holiday.
