Volkswagen AG, Europe’s largest automaker, on Tuesday briefly passed Toyota as the world’s biggest car maker by market value.

The shares of the German company, which is building a $1 billion assembly plant in Chattanooga, surged by as much as 55 percent in trading.

It closed at 292.35 euros, or $398.49 per share, up 5.2 percent, while much of the rest of the Dow Jones Stoxx 600 closed down.

Analysts said the company benefited from hedge fund trading strategies, according to Bloomberg News. Traders who shorted the shares on expectations they would decline on Porsche SE’s bid for a majority stake in VW were forced to close their positions, Bloomberg said.

Chris Hopkins, vice president of investments at Barnett & Co. in Chattanooga, said shorting a company’s stock can artificially add volume. When a company’s shares rise, shorting reinforces the upward price movement.

“They’re all trying to get out the door at the same time,” he said about the short-sellers.

Mr. Hopkins said the fundamental question related to the company is why the shares are going up.

The jump in VW’s shares had put its market capitalization at $129 billion, surpassing Toyota Motor Corp.’s $127 billion, before falling back to under $100 billion.

VW officials hope to start pouring concrete in November at Enterprise South industrial park and begin production by early 2011 at the 1.9 million-square-foot plant.

The company, No. 3 worldwide in sales, has set a goal of surpassing Toyota and General Motors, which have been Nos. 1 and 2, respectively.

The Tennessee plant is aimed at helping VW sharply grow its market share in the United States — a key cog in its worldwide strategy, officials have said.

Europe slashes output

European automakers and several European units of their American competitors are cutting production and jobs, saying demand is flagging from customers rattled by the global financial crisis.

BMW AG, Daimler AG, General Motors Corp. subsidiary Adam Opel AG and the German unit of Ford Motor Co. all announced production cutbacks in Germany on Tuesday. GM said its other subsidiaries in Europe were also affected. Italy’s Fiat and Renault of France likewise said they would slow down production.

The Associated Press contributed to this report.